Is There No End to this Misery???

I thought yesterday that perhaps we’ve seen the worst what with the VIX closing above 30. Silly me. Good thing I didn’t buy those index calls! There’s so much media speculation concerning how we got into this mess, how much further do we have to go, and who’s ultimately to blame. The playing field is already too crowded and the focus of my blog is more on the interpretation and implementation of technical patterns rather than on the economic forces behind them. Okay, so the financial system is collapsing. Were our portfolios prepared for such a downturn? Do we have a plan for when the market turns around?

That’s why I’m here. My goal is to educate the reader so that he or she will be able to discern the climate of the market and know what strategies to implement. There are plenty of financial blogs that thrive on speculation and finger pointing, and many interesting and sometimes heated discussions that ensue. This blog is not one of them. Sure, I’d love more feedback and I encourage it, especially comments that focus on the technical (although I certainly won’t discourage thoughtful comments on other subjects either). Just in case you’re still in the dark as to my mission statement, it’s to educate the reader about market technicals (see Cooking Tools) and arm him with viable trading strategies that he can employ under the prevailing market climate (see Recipes).

Okay. I’ll step off my soapbox. For now. So, where were we? Oh yes, the VIX. It took a huge gain today, marching steadily upward where it ended today’s rotten session at 36 and change, closing in on its recent high of 37.5. Because of the unprecedented happenings in the financial market, nobody really seems to know much of anything with forecasts as to when this mess will end ranging from tomorrow to a generation from now. This is uncertainty at its best (or worst, depending on your point of view) and I’m betting that the VIX might hit 50 or even higher before everyone finally throws in the towel.

Yes, I’m speculating along with everyone else. I don’t know, either. This type of market is something that hasn’t been seen in at least a generation or two. So, what’s the average investor to do? There are still some sectors that having been doing pretty well, most notably the regional banks (I wanted to cover them yesterday but other stuff got in the way), the retailers (see 8/21 blog), the airlines (because of falling oil prices), some of the homebuilders (see 9/8 blog), and of course our old favorites, the ultra-short contra ETFs. If you hold large positions in the latter stocks, I’d suggest taking some money off the table when the VIX heads below 25.

That’s my rant for today. Maybe tomorrow Mr. Market will be in a better mood.

Note on Bluegreen (BXG) in MANDA porfolio
I said I’d sell this stock if it dropped below $9 which it did right at yesterday’s close. I was thinking that perhaps some of these trades were limit sell orders and the floor trader decided to clean them out. I bravely or stupidly (probably the latter) hung in there today, waiting to see if the price would firm up, and it did. With all of the uncertainty swirling around deal financing, it’s tough to know where the valuation on this stock should be. (The same could be said for Photon Dynamics (PHTN), another portfolio holding.) So, I guess I’ll play this one by ear and hope that I’m not making a huge mistake. (Did I mention that hope was my downfall?)

Today’s M&A activity:
Flash-memory maker Sandisk (SNDK) today rejected a $5.85 billion takeover bid by Samsung saying that it undervalued the firm. The offer translates into about $26 per share and represents a 73% premium over yesterday’s closing price of $15. Although this bid seems juicy, Sandisk shares were trading as high as $30 just last May. Today’s news caused the stock to jump $6 which probably represents a new price floor as the company said it’s open to other offers. I’m not going to jump on this one until a deal is announced and approved by the board.

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