VIX ETFs Lay A Turkey Egg: Wall Street Sector Selector Weekly VIX Report
VIX ETFs laid a turkey egg last week after higher equity prices, light volume
VIX ETFs laid a turkey egg last week as the VIX Index lost 7.74%, the iPath S&P 500 VIX Short Term Futures ETN (NYSEARCA:VXX) lost -13.49%, and the VelocityShares Inverse VIX ETN (NYSEARCA:XIV) gained 14.58% for the past week. Perhaps it was the light trading volume or higher equities, but in light of the upcoming fiscal cliff and more European budgetary concerns, the VIX should be laying anything BUT turkey eggs by now.
The case for why the VIX should go ballistic in the next few weeks is pretty straightforward: the upcoming fiscal cliff has yet to be resolved by the bipartisan (say split) US Congress, and with less than two weeks to legislate any action, the US will either fly off the cliff or punt the problem to next year. If indeed Congress fails and we do fly off the cliff, the VIX will likely be laughing itself to the bank in terms of positive gains; if Congress comes up with a grand solution (unlikely) or punts the issue to 2013 (very likely), the VIX will likely continue to crater as Santa Claus rallies us all into the New Year. Europe and Greece are other sleepers in the next few weeks too, and any tremors from across the pond will likely spur the VIX higher.
From a technical perspective, the VIX Index and VIX ETFs have fallen way below their 200 Day and 50 Day Moving Averages, so it will take a serious offensive in the positive direction to gain any new momentum. The NYSEARCA:VXX meanwhile has reached completely oversold levels, as an RSI reading of 28.71 most likely indicates higher prices soon, merely out of the fact that supply has completely overwhelmed demand and a correction might be due in the near future:
chart courtesy of Stockcharts.com
Weekly VIX ETF Update:
Volatility Index – New Methodology (VIX): Index: 15.14, -7.74%
iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX): -13.49%, This ETN is designed to track volatility in the markets as measured by the Chicago Board Options Exchange Market Volatility Index (CBOE Index), a popular measure of the implied volatility of S&P 500 index options. The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets. The iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) prices itself off of the average and implied volatility of the first two months of futures contracts of the S&P 500 Index.
VelocityShares Daily 2X VIX Short-Term ETN (NYSEARCA:TVIX): -26.21%, This ETN is designed to track 2X return on volatility in the markets as measured by the S&P 500 VIX Short-Term Futures Index. The S&P 500 VIX Short-Term Futures Index measures the volatility of the S&P 500 Index via futures contracts as traded on the CBOE. The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets.
iPath S&P 500 VIX Mid-Term Futures ETN (NYSEARCA:VXZ): -7.76%, This ETN is designed to track volatility in the markets as measured by the CBOE Volatility Index futures contracts. The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets. The iPath S&P 500 VIX Mid-Term Futures ETN (NYSEARCA:VXZ) is priced from the average volatility of the 4th through 7th month futures contracts of the S&P 500 Index as traded on the CBOE.
S&P 500 Dynamic VIX ETN (NYSEARCA:XVZ): -2.46%, This ETN is designed to track volatility in the markets as measured by the S&P 500 Dynamic VIX Futures Total Return Index. The S&P 500 Dynamic VIX Futures Total Return Index seeks to combine results of volatility of the S&P 500VIX Short-Term Futures Index Excess Return and the S&P 500 VIX Mid-Term Futures Index Excess Return to create an accurate market volatility reading, as measured by the CBOE. The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets.
Velocity Shares Daily Inverse VIX Short-Term ETN (NYSEARCA:XIV): +14.58%, This ETN is designed to inversely track the volatility in the markets as measured by the S&P 500 VIX Short-Term Futures Index. The S&P 500 VIX Short-Term Futures Index measures the volatility of the S&P 500 Index via futures contracts traded on the CBOE. The CBOE Volatility Index is also known as the “fear” index or “fear” indicator in markets.
Bottom Line: The VIX Index and VIX ETFs laid turkey eggs last week after higher equity prices and lower trading volume. Congress will likely decide where the VIX will go next, with the fiscal cliff again taking center stage.
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