VIX Update: Red Flag Mode

U.S. equities, ETFs seek higher ground as December starts and investors wonder if Santa will show up for the traditional year-end “Santa Rally”

   

U.S. equities and ETFs were mostly flat as November drew to a close.

For the week, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) gained 0.1%, the S&P 500 added 0.5% for the week and the PowerShares QQQ Trust (NASDAQ:QQQ) added 1.4% from last Friday’s close.  The Russell 2000 also put in a good week with a gain of 2.1%.

For November, the Dow Jones Industrial Average declined 0.5%, the S&P 500 gained 0.3% and the Nasdaq Composite added 1.1%.

On My ETF Radar

SPX 12 3 12 VIX Update: Red Flag Mode

Chart courtesy of StockCharts.com

 

In the chart of the S&P 500 above, we can see how the index has reclaimed its 200-day moving average and broken through resistance at the 1,400 level, which has been a major battleground for the last few weeks.  Next major resistance levels are at the blue 50-day moving average and recent highs between 1,430-1,460, with the upper band just 3% from current levels.

The S&P 500 ETF will have to break through these levels to reestablish its uptrend. However, the index has already reclaimed most of the ground lost since the beginning of the correction in early October.

As we enter December, the topic of the seasonal “Santa Rally” comes into view and the fiscal cliff could put Santa in jeopardy this year, which could be bad news for stocks and ETFs because as famed investor Yale Hirsch said, “If Santa fails to call, bears may come to Broad and Wall.”

On Monday, Nov. 26, we entered a position in Velocity Shares VIX Short Term ETN (NYSEARCA: VIIX) at $16.51.

This week, we will hold this position and I’ll explain why.

VIX 12 3 12 VIX Update: Red Flag Mode

Chart courtesy of StockCharts.com

 

A quick glance at the chart of VIX, the CBOE S&P 500 Volatility Index, also known as the “fear index,” shows us that the index is still below its 50- and 200-day moving day averages, indicating extreme complacency in today’s markets.

However, RSI and MACD are turning up and the index appears to be putting in a bottom at the 15 level, all of which could indicate higher prices for VIX and VIX ETNs ahead.  Higher VIX correlates to lower equity prices, and so a turn higher for VIX would indicate lower stock and ETF prices ahead.

Wall Street Sector Selector is in “red flag” mode, expecting lower prices ahead during the next 30 days.

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.

 


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