‘Santa Claus Rally’ May Fly off the Fiscal Cliff

VIX ETFs should remain bullish if Washington keeps dilly-dallying on the fiscal cliff

   

VIX ETFs are looking more bullish by the day, as the VIX Index rose 6.92% last week for the week to close at 17.00 while the iPath S&P 500 VIX Short Term Futures ETN (NYSEARCA:VXX) gained 3.3% for the week.

12 17 121 300x235 Santa Claus Rally May Fly off the Fiscal Cliff
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From a fundamental perspective, VIX ETFs will likely continue to rise so long as lawmakers in Washington continue to stonewall any progress on the fiscal cliff resolution.  Should politicians reach a settlement and avoid the cliff, VIX should see a short term downwards move.  Still, fundamental headwinds remain into the New Year, as even with a settlement, spending will decline, taxes will rise and the global economy will continue to slow.  Read: Fiscal Cliff: T-15 And Counting

Technically speaking, the VIX Index and VIX ETFs have to break through their 50 Day Moving Averages to turn truly bullish.

VIX ETF Update:

Volatility Index (TSE:VIX) – New Methodology : Index: 17.00, +6.92%

iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX): +3.03%, 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

VelocityShares Daily 2X VIX Short-Term ETN (NYSE:TVIX): +3.45%, 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.

Velocity Shares Daily Inverse VIX Short-Term ETN (NYSE:XIV): -3.17%, 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:  VIX ETFs will likely continue to rise so long as Washington stonewalls a fiscal cliff resolution.

Recommendations:

For the week of December 16, 2012, we continue to HOLD Velocity Shares Short Term VIX ETN (NYSE:VIIX) in anticipation of lower equity prices and higher volatility.

We also continue to HOLD iShares 20+ Year Treasury Bond Fund (NYSE:TLT)

Wall Street Sector Selector remains in “red flag” mode, expecting lower prices ahead.

Disclaimer: VIX ETNs are extremely volatile and can easily sustain large gains or losses. Risk management and position size are extremely important. Read the prospectus to understand the potential risks and rewards. It is possible to lose your entire investment. The content included herein is for educational and informational purposes only, and readers agree to Wall Street Sector Selector’s Disclaimer, Terms of Service, and Privacy Policy before accessing or using this or any other publication by Wall Street Sector Selector or Ridgeline Media Group, LLC.

Read on for my past alerts on trading the VIX and VIX ETFs:

 


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