Volatility remains in the headlines and all eyes continue to focus on Europe despite the weakening US economy or very low price to earnings ratio on US stocks.
The Eurozone received additional bad news Tuesday, after Standard & Poor’s Ratings Services on cut Italy’s sovereign-debt rating a notch, saying the Mediterranean nation’s weak economic growth and fragile government coalition will make it harder to head off the growing crisis sweeping the euro zone. The news represents a fresh setback for the currency zone’s third-largest economy.
In the US the markets continue to gyrate, but despite the Dow moving lower by 250 on Monday morning Apple Inc was making a new high. Not only has volume been reduced recently, the the VIX volatility index has tested support levels near 30.50. The current horizontal trend line now coinsides with the 50-day moving average. A break of this level on a daily basis is likely to see a continued decline.
Tuesday begins a two day meeting of the US FOMC. Many economists expect the FED to announce some kind of stimulus. Most expected the FED to announce further longer dated purchases of bonds from the current reinvestments in the FED portfolio. If the Fed is more accommodative, the markets will rally pushing the VIX below support. If the FED is less accommodative, the VIX will bounce and head for higher ground.
The Trade – Purchase a daily VIX binary put on a daily close below 30.00. The floor on the trade is 28.5%.
Signal Summary
Asset : VIX
The trade : Binary Put Option
Expiry time : End of day
When : On a daily close below 30.00. The floor on the trade is 28.5%.
