VIX ETFs Go Over A Cliff (VXX, TVIX, VXZ, XIV)

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VIX ETFs tumble in response to Dr. Bernanke and FOMC interest rate announcements.

VIX, the CBOE Options Market Volatility Index, commonly known as the fear indicator, continued its plunge today as stocks rallied in response to Dr. Bernanke’s and the Federal Reserve’s ongoing accommodative monetary policies.

VIX is widely seen as a predictor of future stock prices as when fear is high in the markets, VIX rises and stock prices tend to decline while the opposite is true in rising stock markets.

A quick glance at a chart of VIX shows us a clear picture of what is happening.

 chart courtesy of www.stockcharts.com

In the chart of VIX (NYSEARCA:VXX) we can see that it is in a sharp downtrend and now below 20 which is widely regarded as reaching extreme lows.  In fact, we can see that readings below 15 have not been seen in the last few years and one has to go all the way back to the bull market of 2007 to find readings below 15.

Today’s news sent VIX down 2.3% to settle at 18.13 as market players digested the Fed’s stance on interest rates and its commitment to supporting “risk” assets.

Major VIX ETFs finished the day as follows:

iPath S&P 500 VIX Short Term Futures (NYSEARCA:VXX): -4.2%

Velocity Shares Daily Inverse VIX Short Term ETF (NYSEARCA:XIV): +4.5%

iPath S&P 500 VIX Mid Term Futures ETN (NYSEARCA:VXZ): -1.4%

Velocity Shares Daily 2X VIX Short Term Futures ETN (NYSEARCA:TVIX) -8.2%

Bottom line: VIX ETFs suggest that higher stock prices, lower VIX lie ahead, however, the index is reaching critical levels at which a pivot point could be seen.  For now, however, fear is in retreat as the “fear index” falls off a cliff and risk assets rally.

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