VIX Fiscal Cliff grew deeper in Week 2, 2013 as VIX ETFs continued to crumble
The VIX ETF Fiscal Cliff continued to grow deeper in week 2 of 2013, as the VIX Index dropped 3.40% and the ipath S&P 500 VIX Short Term Futures ETN (NYSEARCA:VXX) lost an additional 3.96%. Those who were trading the VleocityShares Inverse VIX ETN (NYSEARCA:XIV) did quite well this week however, as NYSEARCA:XIV rose 3.93%.
The VIX Index and VIX ETNs continued to decline right as equity markets saw the largest inflow of cash since 2008. Such an inflow of cash would suggest an enormous bull market is on the horizon, thus dampening fear in the marketplace and killing the VIX Index and VIX ETFs. Last week, the Russell 2000 Index reached its all time high of 881, and the S&P 500 was within 100 points of its all time high, so clearly the bulls are trying to break loose. Bullish markets tend to mean lower VIX prices, so if the bulls truly do break through their resistance levels of 2007-08, then the VIX is likely in for a fearless decline into oblivion. ETFs On The Verge Of A Breakout?
From a technical perspective, a chart of the VIX Index speaks way more than words:
chart courtesy of stockcharts.com
All you have to see are the two deep red lines at the end of the chart illustrating the recent crash in the VIX Index. With a 3.40% crash this past week, on top of the 39% crash the previous week, the VIX Index and VIX ETFs are hurting right now. However, it appears that the VIX and VIX ETFs have hit a bottom, as the MACD is again just under negative, and the RSI is just below ’50.’ If the bulls fail to break through major resistance levels in equity markets, the VIX will likely rebound and move up again. If the bulls do break through resistance levels and we see new S&P 500 and Russell 2000 highs, then we might have a new standard of “low” for the poor VIX. Below is a weekly summary of VIX ETFs:
Weekly VIX ETF Update:
Volatility Index – New Methodology (VIX): Index: 13.36, -3.40%
iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX): -3.96%, 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): -6.76%, 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.