Tuesday, August 9, 2011

STOCK MARKET/DEBT DOWNGRADE

It is really difficult to be right all of the time. Just kidding. I remain your cabdriver friend who sits here and tries to connect the dots.
Again, where the last blog left off. After I wrote it I kept watching the news, and felt the Dow could sell off, 800 to a 1000.
I didn't really think so, as it has really good support here somewhere. So, if it had done so, that would present a great buying opportunity, but not so fast.
Now I think the market will bounce around quite erratically, with 100 to 200 point swings, even intraday. It is very volatile.
The vix---or volatility index is around 35, even 40. I've never seen it so high. Let me shed some light on this index. It is a measure of volatility/movement, more particularly price instability. If a stock has a volatility of 15, that is translated as 15%. What the speculators are saying is that the stock can move up 15% or down 15% in the next year. A $50 stock, according to this could go to $65 or down to $35.
The whole market presents a snapshot in time. The vix (ticker symbol is often .vix) is usually around 15. Lately it's been climbing to 25, now today up to 35+. That is an amazing high point. Yes, this means some speculators are saying the Dow could go up 35-40% from here, or down 35-40% from here. What a swing that would be.
With the Down just under 11,000 that would be someone's guess that it could go up to 15,000 or down to . . . well, I hate to write it, because I don't want to be the bearer of bad news. I don't think it will go down that far. In fact, maybe only a bit lower then it will bottom out and start to recover. This market needs to get back to solid pro-market, pro-growth and anti-tax sentiment. I just don't see that coming out of the White House.
Quick point in closing. In the market there are several maxims that we live by. One is this: "When stocks go up, implied volatility goes down." Stocks climb a wall of worry, curtailing further increases, at least making them harder. Option market makers suck all of the "fluffiness" out of the premiums, as reality sets in. The second part of this maxim is this: "When stocks go down, especially when they tank, implied volatility goes up."---Sometime way up as we've seen today.
It will settle down. The sun will rise. Get ready to find some bargains.
I'll keep looking and reporting.
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