Keeping An Eye On The VIX (VXX)
$DIA, $SPY, $QQQ, $VXX
The DJIA closed last week with a 75-point gainer, with the S&P also rising less than half a percentage point. Participants can still hold out hope that a year-end rally can occur without Fed intervention.
Monday, the US major market indexes were flat on moderate volume
DJIA +14.57 at 17230.54, NAS 100 +18.78 at 4905.47, S&P 500 +0.55 at 2033.65
- NAS 100 +3.6% YTD
- S&P 500 -1.2% YTD
- DJIA -3.3% YTD
- Russell 2000 -3.4% YTD
Recently the VIX was 12 and it quickly 4X’d, handsomely rewarding anyone who bought calls on the VIX, as opposed merely to buying protection to hedge a long portfolio.
Friday, with the VIX again back below 20, consider what message the VIX might be sending to markets.
Note that the VIX has fallen to the lowest mark in 2 months.
So, does this mean that the recent spate of volatility is already over or that volatility was here to stay.
Fear is related to uncertainty, and the uncertainty is not over.
The Big Q’s: What is the Fed was going to do, the global economy, and what is happening with earnings?
People were afraid, they are still afraid. But the VIX has “come in nicely, some fears have subsided, and a lot of the issues that rocked the tape have subsided near term.
The last time we saw the VIX get into that 50 area was Y 2011, and before that, Y 2010.
Now the VIX has fallen below its 200-Day MA, which is flat, back to its comfort zone, a level we have seen for most of the last 3 years, with support in the 10, 11, 12 area. That is where you start to say maybe we’re getting overly Bullish, and we’re not there yet. That is where you start to worry about the VIX again.
The VIX as evidence that the market is convinced that the Fed will not move to increase interest rates by even a token amount for the foreseeable future, but the Fed’s commitment to the ZIRP will continue to foster excesses in markets that could result in another episode of the ongoing financial crisis.
It is a good idea to keep an eye on the VIX.
| HeffX-LTN Analysis for VXX: | Overall | Short | Intermediate | Long |
| Bearish (-0.30) | Bearish (-0.25) | Bearish (-0.31) | Bearish (-0.35) |
Stay tuned…
HeffX-LTN
Paul Ebeling
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