The market saw one of the worst sell-offs of 2012 yesterday. As we mentioned in our previous video, the VIX had fallen to about 17 by Wednesday, just at Ben Bernanke delivered the FOMC meeting press conference. (If you bought a Long Straddle at this level of the VIX, you did great – please see our previous video blog). Sure enough, the Fed didn’t give the market the fix it wanted – and coupled with some bad economic data on Thursday, the markets fell off a cliff. Adding to the woes, 16 global banks were downgraded by Moody’s, including the largest U.S. banks.
The VIX Index had spiked 16% by the end of the trading day. So you literally had one day to catch the VIX at a level of 17 before it went to the moon again. This is what our video had predicted. Catch that video post here. And the video is included here again.
Among the downgraded U.S. banks are Morgan Stanley (MS), which saw a double-notch downgrade and may need to raise more capital to boost its capital ratios. The other notable banks to see downgrades include Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), J.P. Morgan (JPM), Barclays, Deutsche Bank, Royal Bank of Scotland…All right we won’t name the rest, they’re all in there.
Markets in Europe are down, but our S&P Futures are up this morning. Either the downgrade of the banks was already baked in (doubtful because the markets dropped sharply yesterday) or the markets don’t care too much about ratings agencies anymore (likely). The ratings agencies are trying hard to get in front of major events, but they’ve built a bad rap over the years, and its going to take a while before they’re taken seriously again.
Being a Friday, I think markets may end the week with profit-taking, because there is no good news from any direction. Manufacturing data out of China is bad, our Philly Fed index was horrendous, and housing data continues to be miserable. Watch for the VIX to drop a point or two if pre-market indicators continues into the market open. Have a great weekend everyone !!