I'm going to throw water balloons at people yelling outside in the middle of the night on a weeknight
Why would you throw balloons at them?
I saw people yelling outside and I think they're into some bad stuff.  They might be dealing drugs.
Being disrupted when you are sleeping at night can be very annoying and disruptive, but it is going to be very inappropriate for you to throw water balloons add them. I would recommend that you talk with them nicely and safely and probably recommend them that they do their business elsewhere where they are not disrupting the sleep of people.
So I should let them do what they want? I think they shouldn't yell outside, then they get what they've got coming to them.
I agree that people shouldn't be selling drugs or being disruptive in residential areas, but there are better ways of dealing with the issue.  If they continue to make noise after you ask them to stop, you can file noise complaints with the police, but assaulting them with water balloons will just invite retaliation.