You Only Have One Friend

Charts: Last week the S&P 500 hit 1340, found support and traded out of the danger zone. The NASDAQ is finding support at 2900. If either of these support levels are breached it will probably get very ugly. The market is in a correction and you should be as nervous as a long tailed cat in a room full of rocking chairs. I am.

Fundamentals: We are staring in the face of Greece defaulting. That in itself cannot hurt the world economy. Greek bonds are owned by the ECB, Greek banks, and well protected hedge funds; everybody else has got out of Dodge a long time ago. The danger is not Greece per se but contagion to Spain and then the rest of Europe. Yield on the Spanish ten year note is over 6%, above the danger zone. This is why the long tailed cat analogy is apt. We must look to our only friend for succor.

Long War: The Yemeni Army is kicking the crap out of AQAP's army, destroying about a dozen AQAP main battle tanks on Sunday and killing 30 AQAP soldiers. Media reports tell us that CIA drones are operating in wolf packs for the first time in Yemen and are killing bad guys everywhere in southern Yemen except in and around the pitched battle between the Yemeni Army and AQAP. We are also told the Yemeni Air Force is enjoying unusual good luck in clobbering the bad guys. The CIA does not have permission to provide close air support to the Yemeni Army. We know that Petraeus asked for permission to do this, so he thought it was essential to provide drone close air support a few weeks ago. If we are to believe the media reports, then Petraeus was wrong. There is no need for drone close air support because the Yemeni Air Force is suddenly so awesome it doesn't need any help. Yeah right. CIA drones are probably protecting the Yemeni Army like a mother hen with a batch of chicks.

As an aside to the above story: The mere fact that Al-Qaeda has main battle tanks is chilling. It's not supposed to work that way. And you can see why Yemen is now the heart of the beast. The Syrian Civil War is important but Yemen is even more important.

Congress is in a twitter about a leak within the CIA revealing all the details of the CIA double agent who foiled the recent AQAP underwear bomb attempt on an American airliner. For instance, we know that the double agent was a Saudi who held British citizenship. We know his favorite color was red and he liked to take long walks on the beach (okay I made the last two items up, you get the point). Congress is outraged that somebody in the CIA leaked all this to the general public. Congress is going to spend a lot of energy with hearings and investigations to tighten up the loosey-goosey culture in Langley. And there might be hearings about why Congress wasn't informed about the operation in the first place. Petraeus is slowly twisting Congress into a knot. When he is done with them they won't know how to spell CIA.

Specific Stocks: Luxury watchmaker Fossil reported weakness in Asia and Europe. Coach is exposed to these same markets. Coach reported before Fossil and said it is seeing weakness in Europe but strength in Asia. The market is acting like Coach is just as weak in Asia as Fossil. I don't think this is true but I sold Coach after the Fossil report because I don't want to fight the tape.

For several days after the Fossil report Lulu Lemon was getting hammered, as if it faced the same problems as Fossil. But Lulu Lemon has almost no exposure to Europe or Asia. More recently LULU has stabilized and seems to be forming a basing pattern. Coach hasn't done this. In the long run Coach is an awesome company and it can be held for the long run, but you can also get retail exposure without much overseas risk with XRT, the index of American retailers.

You should buy growth stocks when they are just beginning to break out of a basing pattern and when the market is in a rally, not a correction.