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Trade Volatility for the Fiscal Cliff Countdown

Play it safe with TLT, but don't miss the potential of VIIX


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The fiscal cliff ticked closer last week as U.S. stocks and ETFs rose slightly for the week while volatility declined.  Political leaders continued their sparring, however, traders and investors continue to believe that a resolution to the fiscal cliff will be found before the end of the year.  21 days remain until the cliff arrives on Dec. 31; however, this is the last week when Congress is scheduled to be in session with the Christmas break starting Friday, December 14th.

On My ETF Radar

A quick glance at the chart of the SPDR S&P 500 ETF Trust (NYSE:SPY) shows us that the index is still in a bear market, below its red bullish resistance line and with a bearish price objective of 1380.  However, the shorter term direction has been up and the index is in a range between 1350-1420 as the sideways action continues and market participants wait for resolution to the fiscal cliff.

Major U.S. stock indexes and ETFs continue their sideways drift in anticipation of a resolution to the fiscal cliff.

The Fear Index at a Turning Point

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Regarding VIX, the CBOE S&P 500 Volatility Index, also known as the “fear index,” volatility declined this week to reach significant trend line support and so is now at a turning point.  A break lower would indicate lower VIX and higher equity prices, while the index bouncing here would indicate a resumption in the uptrend in volatility and the potential for lower equity prices ahead.


For the week of December 9, 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)

Investors wishing to initiate positions in either can do so as both remain on “buy” signals.

TLT is a very stable trading platform that has low volatility and pays dividends.  We anticipate higher bond prices as risk assets come under pressure from the fiscal cliff and slowing global economy and bonds gain support from more quantitative easing by the Federal Reserve.

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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