VIX ETNs: Calm Before the Storm?

October 16th at 1:00pm by Tom Lydon

The CBOE Volatility Index, also known as the VIX, is showing that investors are getting calmer and the bleeding in exchange traded funds (ETFs) and markets has abated. But has everyone gotten too complacent?

The VIX recently traded below the historical average near 20 as investors await corporate earnings and stimulus from the Fed, reports Brenadan Conway for Yahoo! Finance. A similar calm in the market was experienced in April, which preceded a market correction.

One strategist compared the VIX with a car’s temperature gauge. “If it gets under 20, in this environment that’s dangerous, that’s like getting into the red. It shows we’re being too complacent.” [VIX ETNs Reflect Market Fear.]

Analysts have cautioned that we shouldn’t read too much into the VIX, but the market seems to want to focus on irrational exuberance, which can be seen in bullish rallies on expectations that quantitative easing will be the market’s panacea despite signs of continued high unemployment and mixed economic projections.

What can you do if this is the calm before the storm? Brush up on your buy and sell strategy (we use trend following) and consider using some of the tools we have. Alerts will notify you of a trading opportunity, while the ETF Watchlist on the Dashboard will let you keep tabs on any ETF so you don’t miss a thing.

For more information on volatility, visit our VIX category.

  • iPath S&P 500 VIX Mid-Term Futures ETN (NYSEArca: VXZ)
  • iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX)
  • Barclays Inverse S&P 500 VIX Short-Term Futures ETN (NYSEArca: XXV)
  • VEQTOR Exchange Traded Note (NYSEArca: VQT)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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