Thursday, July 31, 2008

No Title Tonight???

Top Line: The stock market is giving a clinic on volatility and it has dropped about 20% over the past nine months but the VXO, volatility index, is about flat line. We expect a jolt of downside will get the VXO back into normal sinus rhythm. To translate that into, well, the best English we have, would be to say that the VXO will most likely jump up to a level that is more in line with the current conditions in the market. Yeah, you're right, that's not exactly English...

In our Top Line from yesterday's post, we mentioned that the NASDAQ was weaker than the blue chips. On Thursday the opposite was true, the NASDAQ was much stronger than the blue chips. When the market doesn't move together, there isn't enough buying power and we think that is bearish. By the end of the day

The month of August begins on Friday and we think it should be quite a month indeed. Friday morning we get the jobs' report and with that out of the way, the market then needs to wait until next week's FOMC meeting. After that, it should be ready to go down. We would not be surprised to see a decline before that because the market can surprise on the downside in a bear market.

As we mentioned in our last post, this should be a good time to follow some numbers especially the VXO, volatility index, so we can get an idea when some fear comes into the market. As the VXO goes up, it means that the premium on put options has increased. As people buy puts because they're scared, they will pay any amount of money and that is what pushes up the premium which in turn pushes up the VXO.

We have purchased two main assets that take advantage of the drop in the market. We have chosen the ProShares ETF's that are based on the SP500 and the QQQQ's (NASDAQ 100) dropping, so they go up when the SP500 and the QQQQ's (NASDAQ 100) go down. The SDS is the Ultra Short SP 500 and the QID is the Ultra Short QQQ. We have added the ProShares link on the left so that we can easily get to it.

We said we would include the Dow Industrials, too, so that is shown below, too.

Have a good weekend.

FSI: 80.78 (even with the NASDAQ hanging in there, the FSI fell 1%)
You didn't think we would stop showing this number, did you?

VXO: 24.67 +2.04 (Up means puts have more premium than yesterday)

SDS: 67.47 +1.76
QID: 43.94 +0.23

Dow Industrials: 11,378.02 -205.67

Oh, yeah, and we have a couple of Jackson pictures :-)

Sorry, Jeff but Jackson has such a good smile on this picture.

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