Shares of Moody’s Corporation (MCO) and McGraw-Hill (MHP), parent of Standard & Poor’s, were hit hard today after a federal judge ruled the companies will have to defend themselves in a fraud suit brought by Abu Dhabi Commercial Bank and King County, Washington.

In a timely unloading of shares, Warren Buffet’s Berkshire Hathaway filed today that it sold 747,000 shares of Moody’s (MCO) between Monday and Tuesday of this week at $27.22 a share.

When companies are vulnerable to litigation risks, it is best to sell first and ask questions later.

Moody's - Daily Chart

McGraw-Hill - Daily Chart

The S&P hugged the lows of yesterday for the majority of the day in a mostly quiet session.

S&P 500 Intraday Range

Quiet as it seemed, there was a pick up in volume in both the S&P e-mini contract (machines) and the pit traded contract.

S&P 500 - Daily

Poker

When I left off on my poker analogy, the market called my re-raise after the flop. I stated that I would call the market, no matter what the turn card. The turn card was dealt yesterday and the break lower showed a pick up in volume. Along with the pick up in equity volume, the credit market confirmed what it had been hinting at all of August. Credit spreads widened across the board, most notably in the financial complex.

Waiting for the turn card was the tough part. I have now bet the size of the pot and I await the market’s reaction. Based on today’s action, I’d say the market has not reacted much. It is still staring down at his cards. So far the only tell is the pick up in volume in the S&P futures contracts today.

I stuck to my plan when the turn card was dealt by buying puts in a range of asset classes and calls in 10 year Treasuries. From a chart perspective I see potential resistance in the 10 year above the 120 mark.

Treasury Futures

Gold

Gold traded strong today and was up the most it’s been since March. Depending on where the trendline is drawn, some may declare it an official breakout. Some time back, I sold my gold positions. Last year, when the flight to safety trade gripped Wall Street, gold traded much lower–as low as $680 per oz.

In light of that, I am going to see if gold can surpass the $1,000 mark–and the subsequent reaction–before I am tempted back into gold futures. For now, the physical gold that I hold in safe haven countries around the globe will suffice.

Gold

Slowly but surely, cracks in the foundation of the market are appearing and confirming themselves. If volatility is to make a sudden move higher, I am positioned well.

As I wait for the market to react to my bet, I will seek out the important tells and communicate them as best I can.

That’s a Rap.

Peace. Out.

Number nine, number nine
Industry allows financial imbalance
-The Beatles, Revolution 9

As mentioned in a prior post, the S&P topped on October 11, 2007. In March of this year, it found support at 666. The March low was 666 days from the October high.

The Panic of 1907, was chiefly caused by a rescission of market liquidity.

The high in 1906 to the low in 1907 lasted 666 days. Markets run in cycles and the cycles don’t change.

The only thing that changes in the markets are the players.

The Panic of 1907

The S&P (SPX) had a range bound week. Over the past month, widening spreads in the credit market have hinted that big money is attempting to position for a breakdown.

The most difficult trades are when you fade an existing trend. If you are short here, you are fading the uptrend that began in March. Given the magnitude of the gains since the March lows, the crowd is programmed to buy any sell-offs. In July, sellers emerged, but they were overwhelmed by buyers. The market has run higher ever since. When sellers re-emerge, buyers could become overwhelmed and a more vicious sell off will ensue. When the inevitable sell off arrives, I will be observing the intensity of the selling. If the selling is fierce, then the pullback will likely evolve into something more substantial–perhaps more substantial than anyone is prepared for.

The biggest trade of 2009 may yet be upon us. Only time will tell.

Last week's range - 60 minute chart

S&P Daily Chart

The Shanghai Composite is consolidating after a sharp sell off.

The US Dollar made a lower low in early August versus the low print in June. New lows on the dollar will drive equities higher. Conversely, a rally in the dollar will cause equity weakness.