*Blue Plate Specials* Portfolio – 9/30/10

Market Notes
The major averages made a valiant attempt to burst out of recent resistance on the open but the bears quickly crashed that party ending the day on a down note. Adding fuel to the bears’ fire is the VIX which is stealthily inching higher.

Historically, market rallies are accompanied by a concomitant drop in the VIX (unless the VIX is already at a low) but not this time. Is this a bullish sign or a bearish one?

Traditionally it would be viewed as bearish (and I’m actually expecting a lower open tomorrow) but I’m thinking that this could actually be looked at as a contrary sign.

Here’s my reasoning.

Corporations are sitting massive amounts of cash and can easily raise cheap money by issuing corporate debt thus giving them the ability to make strategic acquisitions and participate in share buy-backs. Couple this with the extremely low P/E valuation of 13.6 on the market and you have a classic recipe for a massive rally in stocks.

Now here’s where the VIX comes in. Suppose we do have this massive rally. If the VIX is already near a low, it has no place to go, right? Ergo, an elevated VIX gives the market more room to zoom.

That’s my theory and I’m stickin’ to it.

New Long Portfolio
Today’s portfolio selections come from the following *Blue Plate Specials* lists: Breaking out to new highs (6), Breaking out to new highs on lower volume (1), Darlings of the Day (2), and Speculative Leaders (1).


Today’s portfolio close-out
The 9/15 portfolio was cashed out for an 0.8% gain. Nothing did too badly but nothing did all that well either except for Monro Muffler, MNRO.


Stock Watch
There’s nothing we could have done following the bad news on Green Mountain Coffee Roasters, GMCR, in the 9/27 portfolio. It gapped down 17% and has just been rolling around at its current level for the past two days. My philosophy is why not wait and see what happens? We’ve nothing to lose unless it slides further and my stop/loss set just under $30 will ensure that the loss doesn’t get worse.

A couple other stocks are taking a little breather. To prevent further downside, I also set a stop/loss on Spreadtrum (SPRD) in the 9/20 portfolio for just under $12 and on Looksmart (LOOK) for just under $2 in the 9/22 portfolio.

[See 4/21/10 blog for further details on how these portfolios are constructed.]

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