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Morning Market Briefing – Wednesday – 08/28/2013

Yesterday’s market blood bath was relentless.  Throughout the session, broad-based selling resulted in the major averages settling on their lows for the day.  The market makers prayers to the war god were finally answered.  They needed something, anything to create enough fear to increase the trade volume. Nothing hurts Wall Street profits more than stagnant, unsure, timid, low-volume markets.  The probability of U.S. military involvement in Syria was the jolt required to move the market.

Ironically, this jolt broke a few BIG market “Thesis”.  You know the one that states that if interest rates go down, the market goes up and vice versa!  In addition, the one that claims war is a good stimulus for the economy.  One market thesis however acted as expected.  Oil, treasuries, and precious metals were the safe haven investment.

The day of panic sent the CBOE Volatility Index to its highest level (VIX 16.76, +1.77) since early July as robots scrambled to buy protection. Yesterday’s session was the most active in the last 10 days, as 680ish million shares changed accounts.

Days like yesterday are my favorite types of day because you can quantify the noise.  For example, because we have a position in Intrepid Potash (IPI), we closely followed its bid and ask.  You can see phantom bid and ask moving up and down (both in price and actual spread) with few orders ever getting executed.  Depending on your trading platform, you can also spot real orders.  The programs move the phantom bid and ask, moving the market makers actual bid and ask.  Intrepid Potash had little selling pressure.  On Monday, over 4 million shares exchanged hands. On Tuesday, a day that market volume was high, only 1.3 million shares were traded.

Today, futures are pointing to a slightly green open.  It appears that we might have a few green days in a row considering how things are playing out.  First, reduction of QE is now possibly off the table for September. Second, seems like the Syria strike will not happen tomorrow.  Lastly, Labor Day is approaching.

But with these clowns in Washington, you never know with certainty what’s going to happen.  We have John McCain on TV talking about getting weapons into the hands of the “right people” by bombing airfields and disabling air defense capabilities.  This leads me to believe that we, the US, are not planning on a real war, just some remote damage.

In conclusion, the Markets might recover over the next few days thanks to the Holiday.  In addition, I have no idea what team to cheer for in Syria because John MacCain won’t even say who “these people” are that we (the US) support.

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