Hard to argue against momentum. Since the beginning of September, that is the only way to describe the performance of stocks. Especially in the US, where the S&P 500 has had only one serious down day (Sept. 7th), and a couple of days that could be better described as flat (Sept. 14th and Sept. 16th) since the beginning of September.

Certainly, the performance of the US market has done wonders for Canada. But just as certain, you have to think that any stumble in the US will find its way into Canada.

Most traders thought that September would be bearish. What with so many negative macro issues facing the US economy. And it still might end up negative, given that the latter part of the month typically is the most bearish.

I say this because we are closing in on what many technicians see as a sizeable resistance point at the 1130 level on the S&P 500 composite index. The S&P 500 closed on Friday at 1125.59.

The 1130 level has repelled the market twice, once in mid-June and again in early August. And this time we are approaching the 1130 level following a string of up days, which from a technical perspective, has put the market into overbought territory.

This is particularly evident in the VIX (CBOE Volatility Index) futures, where there is an upward bias in the term structure, at a time when volatility has been declining. By a positive term structure, I mean that the longer term VIX futures are trading at higher volatility than the nearer term contracts.

A positive term structure is typical of a bull market. But the current differential seems steep even when seen through the eyes of a bullish trader. Those who read these sorts of tea leaves are skeptical about whether the S&P 500 can actually break free of its trading range. At least when viewed as an upside break out.

Coming full circle this has implications for the Canadian market. From a couple of perspectives; 1) the performance of the broader S&P TSX 60 index and 2) on the short-term potential for gold.

If you are skeptical about the positive performance throughout September, you might look at buying close to the money puts on the iShares S&P/TSX 60 Index Fund (symbol XIU, Friday’s close $17;81). Look at the XIU Oct 17.50 puts at 27 cents.

On the gold front, take a look at buying calls or selling cash secured puts on gold mining companies like Barrick Gold (symbol ABX, Friday’s close $47.52). Specifically, look at buying the ABX Oct 48 calls at $1.35 or selling the ABX Oct 48 puts at 1.85.