Tuesday, November 23, 2010

North Korea Fires Artillery into South Korea, Pressuring Markets (Index Longs Sold Yesterday)

Notwithstanding the seriousness of the situation on the Korean peninsula, if this is a 1 off event, today's pressure on world markets should be limited after today.

  • North Korea fired scores of artillery shells at a South Korean island on Tuesday, killing two soldiers, in one of the heaviest attacks on its neighbor since the Korean War ended in 1953. The barrage -- the South fired back and sent a fighter jet to the area -- was close to a disputed maritime border on the west of the divided peninsula and the scene of deadly clashes in the past. 
  • The attack came as the reclusive North, and its ally China, presses regional powers to return to negotiations on its nuclear weapons program and revelations at the weekend Pyongyang is fast developing another source of material to make atomic bombs.

(Scores of Americans woke up this morning, distraught some news about "far off places" interrupted analysis on how the Dancing with the Stars final went off last night.)

It has been a strange 24-36 hours.  Yesterday, we were on schedule for the normal Monday morning mark up as futures surged Sunday night and into the wee hours as the "shocking" Irish bailout formed... however just as sovereign debt issues now seem to have less of an impact on markets as they have become 'old hat', so have the rescues.  The questions immediately turned to [a] whose next and (Portugal) [b] what are we accomplishing here with "rescues" (kicking can down road, nothing else).  Futures were under pressure and as word spread of the SEC/FBI investigation into proposed insider trading via 'expert networks' the markets sold off Monday.

Indeed technically yesterday was also a head scratcher - key support levels (200 day simple moving average) were broken yet again on an intraday basis - and Friday's lows were taken out (creating negative technical aspects) but a furious rally in the afternoon took the S&P 500 right back over that level and at day highs.  Certainly not something I would expect based on the action mid day... and I was taken out of my index long positions put on late Friday near lows of the days Monday.  The end of day monster rally only made one feel worse... although again, it seems liked a preposterous outcome mid day.

In many ways yesterday's rally - shrugging off the news that Wall Street is one corrupt place - had me laughing.  You could almost see market participants say ... once they saw THEIR firm was not in the crosshairs of the FBI (mid day) .... oh well, business as usual, time to buy stocks!! (p.s. call John in the expert network to see how Hewlett will report after the bell!)  Probably more shocking is seeing American regulators do any regulation... because after all regulation only slows down 'innovation' and profits for the domestic oligarchy.  It is best to leave the financial industry to their own oversight because they have proven trustworthy and efficient at stealing the middle classes wealth at an extraordinary rate with help of the Fed.  That said, don't get too excited kids - we'll have a couple of mid level firms taken as sacrificial lambs, most will pay a middling fine the government will trumpet as 'record breaking'... while of course those firms will admit no wrong doing, and it will be back to business as usual bending the rules and "innovating" ways around any and all regulation (that lobbyists now write).  We saw this with Goldman Sachs for those with short memories. [Apr 16, 2010: The End Game for the Goldman Sachs Crisis]  Just change a few terms like "credit default swaps" with "expert networks" and Flashback!

1.  Goldman will hire the best lawyers in the history of the universe, making OJ's Dream Team look like Ally McBeal.
2.  They will make public statements about their "vigorous defense" while negotiating a settlement that will involve a large check and quite possibly the sacrifice of "Fabulous" Fabrice Tourre.
3.  Upon the writing of this check, Goldman will admit no wrongdoing and the White House will claim victory.
4.  Not one of you will be safer, more employed or in better shape as a result of any of this.
5.  The lawyers and PR reps involved in the case will buy Maseratis and vacation homes.  Lots of them.
6.  Fabrice Tourre will be running his own hedge fund within 3 years.
7.  Everyone connected to this case will still have more money in the bank, in real estate and in investments than you could ever dream of. 
8.  The sun will come up the next day, you will go to work, then pick up your kid at Karate, then pay the utility bill.

Trading huddles anyone? Already forgotten. [Aug 27, 2009: Goldman Sachs Trading Huddles] 

Back to the market... I  continue to be surprised how easily this 200 week simple moving average (last week roughly 1194, this week 1189ish) is being punctured from both the upside and downside at this point.  That is supposed to be a brick wall sort of level that takes a lot of work to move through; instead we're slicing through it daily.  This market also seems increasingly narrow the past week or so - the same high beta names are ramping day after day.  I bought a little Las Vegas Sands last week on a dip and its already up some 14%... ridiculous.  Netflix announces a new "streaming only" service and the market rejoices as if Pets.com announced a new website circa 1999.  Salesforce.com, Priceline.com, Amazon.com, gosh darn this all has a familiar ring to it.

It continues to be a chop fest for now ... very difficult because each time one goes long over the 200 week simple moving average they are chopped at the knees.... and the same for going short below the 200 week simple moving average.  This week is traditionally a very positive one - especially the Wednesday and Friday sandwiching Thanksgiving.  The "hot stocks" of the moment traditionally get bid up and we saw it yesterday - as the fast money crowd could care less about Ireland, Portugal, expert networks or any other item other than turkey... just get them some F5 Networks - pronto!

I remain in 'risk off' status until I see a resolution to this range - we need to break out to new highs for the year over S&P 1225 or to a new low in this rally, which at this point would take out last week's mid 1170s and then 50 day moving average (1172).  In between it is white noise and a choppy white noise at that.

Long Las Vegas Sands in fund; no personal position


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