Volatility ETN Gains As Mood Turns Bearish; S&P 500 Snaps Win Streak

Investors fled U.S. stocks for the safety of longer-term bond ETFs Tuesday, in the process driving up a key volatility ETN for the third straight day.

The S&P 500 and Dow Jones industrial average snapped a five-session winning streak as jittery investors digested weak Chinese trade data and await key monetary policy decisions at home and abroad.

IPath S&P 500 VIX Short-Term Futures ETN ( VXX ) popped 3.8% on the stock market today , marking its third advance in as many days.

Its rally reflects renewed fears about crude oil prices , a weakening Chinese economy and global growth concerns, as well as investors' anxiety that these problems may tip the U.S. into a recession.

VXX provides access to equity market volatility through the CBOE Volatility Index ( or, simply, "the VIX," a trusted gauge of fear in the markets) futures.

"If you own this ETN, you are expecting that volatility will increase over the coming month relative to the current month," Monish Shah, head of ETF trading at Mizuho Securities USA, recently told IBD.

Recent gains for the VXX signal a bearish turn in sentiment after a three-week rally for major U.S. indexes.

The S&P 500 index hit bottom Feb. 11 and has gained 8.3% since then. The VIX index fell 32% in the same period.

Despite that decline for VXX, the ETN actually absorbed $524 million from Feb. 11 to date, including $415 million in the last week alone, according to Shah. That's more than half the assets in the $997.2 million exchange traded note.

That activity may reflect investors' concerns that the current rally doesn't have strong legs, he added.

"At the back end, a lot of savvy investors are buying protection at a cheaper level," Shah said.

Investors wanting to hang onto their positions during a market pullback can buy VXX in the hope that its gains will offset any decline in their long positions.

In other signs of risk-off sentiment Tuesday, Vanguard Extended Duration Treasury ( EDV ) added 1.6%. Its 89 RS Rating signifies that the long government bond ETF is outperforming 89% all stocks and ETFs tracked by IBD in the past 12 months.

SPDR Gold Shares ( GLD ) closed down 0.5% in choppy trade. A member of IBD Leaderboard, GLD broke out of a basing pattern March 3, but has stalled in four days since the breakout.

Defensive utility and consumer staples were the only S&P 500 sectors to gain Tuesday.

Utilities Select Sector SPDR ( XLU ) edged up 1% to 47.84, gaining for the fifth consecutive day. The ETF is now poised 2% above a buy point of 47.10. It broke out of a cup-with-handle base Feb. 25 and quickly retrenched before regaining momentum.

10 Bellwether ETFs

Here's a look at how the major exchange traded funds tracking various asset classes performed today.

Following daily ETF market action can be key to successful investing:

SPDR S&P 500 ( SPY ), -1.1%, RS 63

PowerShares QQQ (QQQ), -0.8%, RS 56

SPDR Dow Jones Industrial Average (DIA), -0.6%, RS 63

IShares Core S&P Mid-Cap (IJH), -1.8%, RS 59

IShares Russell 2000 (IWM), -2.4%, RS 43

IShares MSCI EAFE (EFA), -1.0%, RS 43

Vanguard FTSE Emerging Markets (VWO), -1.7%, RS 45

SPDR Gold Shares ( GLD ), -0.5%, RS 91

IShares Core U.S. Aggregate Bond (AGG), +0.2%, RS 70

PowerShares DB U.S.$ Bullish (UUP), 0%, RS 66

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.