In the absence of big news, all eyes are on the upcoming Federal Reserve meeting, which takes place tomorrow and Wednesday. The consensus is that they’ll leave the main target lending rate near zero, reports The Washington Post. The biggest question is whether the Fed will let a program to buy $300 billion in U.S. Treasury bonds expire. The program was created to lower long-term interest rates and generally make lending conditions more favorable.

McDonald’s (MCD) announced that its same-store sales rose 4.3% in July. The United States’ largest hamburger chain is apparently benefiting from price-conscious diners, as well as a huge promotion of its new line of coffee drinks, says Betsy Vereckey for the Associated Press. McDonald’s fared even better overseas: in Europe, their same-store sales jumped 7.2%.

• PowerShares Dynamic Food & Beverage (PBJ): up 5.6% year-to-date; McDonald’s is 4.9%

Options traders are keeping an eye on the rally seen in the S&P 500 and increasing their bets that it won’t last in September. That month historically has been the worst for U.S. equities, say Jeff Kearns and Michael Tsang for Bloomberg. Traders are now betting that the VIX, a measure of market fear, will gain 13% in the next five weeks.

• iPath S&P 500 VIX Short-Term Futures ETN (VXX): down 20% in the last month

General Motors will begin selling cars and trucks on eBay tomorrow in an effort to reach new customers and restore its lost market share. To start, the deal will involve 225 dealerships in California, but GM hopes it goes national by September, reports Nick Bunkley for The New York Times.

Products that invest in the CBOE Volatility Index (VIX) could have created diversification in the market meltdown, and can do so going forward. Barclays introduced two new ETNs that are a way to purchase “disaster insurance” against market pullbacks, although the products are complex and need to be clearly understood by investors, explains John Spence for MarketWatch.

They are not volatility plays, but rather track VIX futures.

Will trading on uncertainty catch on? One analyst noted that long VIX exposure should be considered as a diversifier, not as a long equity hedge.

ETNs are debt instruments issued by banks that promise to pay an index return, but exposure to credit risk is a threat. ETNs also have different tax treatment. Barclays is selling its ETF unit but keeping the ETN business.

If you consider these ETNs, be sure to watch the trend lines. In their short history, Roger Nusbaum for the Street points out that the VIX has been trading lower as the stock market moves higher.

• iPath S&P 500 Vix Short-Term Futures ETN (VXX)
• iPath S&P 500 Vix Mid-Term Futures ETN (VXZ)

For more stories on VIX, visit our VIX category.

The CBOE Volatility Index, or the VIX, which is calculated from Standard & Poor’s index options, tracks the market’s volatility over the next 30 days. It’s at the lowest level since right before the collapse of Lehman Brothers, states Rodrigo Campos of Reuters.

The probability of an economic recovery has been strengthened by stabilization of key economic indicators such as payrolls, home prices, bond yields, consumer confidence.  Additionally, the Obama administration’s plan to revamp the economy is shedding extra light on the chances of an economic recovery.

Although the aforementioned is all fine and dandy, we are still far from being in the clear.
One of the kings of all economic indicators, consumer confidence, is still unstable.  Confidence among U.S. consumers slipped in June to 49.3 from a revised 54.8 in May and a far cry from the 55.3 forecast by economists.  Additionally, the job market is still not looking too pretty. Companies continue to lay off workers and unemployment rates continue to increase.

Some ETNs to take a look when watching the VIX are the following:

• iPath S&P 500 VIX Short-Term Futures ETN (VXX)

• iPath S&P 500 VIX Mid-Term Futures ETN (VXZ)

Remember that if you do consider VIX ETNs, it is imperative to completely understand how they work.  They don’t track the VIX, they track a basket of volatility futures and produce a negative return where the yield on the cash for the futures softens the blow.

For more stories on the VIX and market volatility, visit our VIX category.

Kevin Grewal contributed to this article.

Trader sentiment is growing more pessimistic and the Chicago Board Options Exchange Volatility Index (VIX) is past the 30 level, which forecasts a sharp drop from stocks, according to Yahoo! Finance.

Readings of 30 or higher usually translates into high volatility and a bearish sign for the Standard & Poor’s 500 index. Another typical bearish sign for the S&P is the growth of VIX spot number and VIX futures spread, which is above a 3.20 premium.

The VIX may keep gaining as investors start taking profits from the recent rally that had stocks shoot up 35% higher from March lows.

Troubling signs for the market are cropping up, with the World Bank issuing a lower outlook for most world’s economies, commodities stocks are weakening and the Dow transports falling about 4%. With second quarter reports on the horizon, investors are fearful of potential low results and a national unemployment rate that is close to 10%.

• iPath S&P 500 VIX Short-Term Futures ETN (VXX): down 8.1% in the last three months

• iPath S&P 500 VIX Mid-Term Futures ETN (VXZ): down 0.3% in the last three months

When considering the VIX ETNs, it is imperative to know exactly how they work.  They don’t track the VIX; what they do is track a basket of volatility futures and produce a negative return where the yield on the cash that serves as collateral for the futures softens the blow.

For more information on market volatility, visit our VIX category.

Max Chen contributed to this article.

• When the VIX is below 15, the S&P’s annualized return is 7.8%
• When the VIX is between 15 and 20, the S&P’s annualized return is 2.8%
• When the VIX is between 20 and and 25, the S&P’s annualized return is -1.5%
• When the VIX is over 25, the S&P’s annualized return is 11.1%.

As for what the future lies for investors, your guess is as good as ours.  Reasons that volatility has softened include bank stress test results have already been disclosed, unemployment numbers have already skyrocketed and are unlikely to jump in huge increments anytime soon and corporate valuations have already been demolished, so there isn’t much more room to drop, states Bill Luby at Vix and More.

However, no one really expected the current global financial meltdown to be as severe as it is, and no one can be sure that it is completely over.  Predicting what lies ahead is kind of playing Russian Roulette, you really don’t know what is going to happen.

If interested in being volatile, there are definitely ways to cure your fix.  One can take a look at the following ETNs:

• iPath S&P 500 VIX Short-Term Futures (VXX)

• iPath S&P 500 VIX Mid-Term Futures (VXZ)

When considering the aforementioned ETNs, it is imperative to know exactly how they work.  They don’t track the VIX, what they do is track a basket of volatility futures and produce a negative return where the yield on the cash that serves as collateral for the futures softens the blow.

Remember to always have a strategy, know what your portfolio consist of and know exactly how your holdings work. ETNs and ETFs differ in their construction, as well.

Kevin Grewal contributed to this article.

Citi, considered to be one of the most troubled banks, posted a quarterly loss of $1 billion and actually turned a profit of $1.6 billion before paying dividends, outperforming analysts’ expectations. This translated to a loss of $0.18/share compared to analysts’ forecast of a loss of $0.32/share.  Despite this outperformance, the bank was down 8% in intraday trading on concerns that headwinds in credit markets are persisting, states Jeff Kearns of Bloomberg.

The Financial Select SPDR (XLF), was down about 1% in morning trading; C is 1.8%

To add icing to the earnings cake, General Electric (GE) beat Wall Street’s expectations as well.  This was much-needed for a firm that has seem nothing but gloom, down 21.9% year to date.  GE announced earnings from continuing operations of $0.26/share as compared to analysts’ expectations of $0.21/share.

First-quarter earnings for the conglomerate were still down about 36% on waning sales and sharply lower profits from its ailing finance arm. This good news gave a little boost to the industrials, the Vanguard Industrials ETF (VIS) gained about 0.2% in intraday trading, despite being down 9.2% for the year. GE is 15.6% of the fund.

To keep the better-than-expected ball rolling, Google (GOOG) was yet another company to beat analysts’ expectations.  The search engine giant reported net income of $5.16/share as compared to analysts’ forecasts of $4.93/share. Despite this outperformance, many are still unsure of Google’s outlook for the current period and immediate future.  The company is feeling the impact of the global recession posting only moderate revenue growth and was able to outperform by keeping its costs down, states John Letzing and Dan Gallagher of Market Watch.

Other earnings reports were not as positive.  Toymaker Mattel (MAT) said weak overseas sales and cautious retail orders led to wider first quarter losses than expected.  The company reported losses of $0.14/share as compared to expectations of a loss of $0.13/share.  Despite this, the stock gained about 11% in intraday trading.

Japan’s top chipmaker, Toshiba, didn’t perform much better.  The company announced that its loss for the previous year will be much bigger than previously expected and the largest loss in its history. Despite this bad news, Japan’s Nikkei index was up about 1.7%.

On a positive note consumer confidence seems to be on the rise. The Reuters/University of Michigan preliminary index of consumer sentiment rose to 61.9, the highest its been since September, and up from 57.3 in March, reports Courtney Schlisserman of Bloomberg.  This index has been battered and beaten by the poor performance in the housing and manufacturing sectors.  The good news is that the increase in consumer sentiment is indicative that things aren’t getting any worse and the depth of the recession may be bottoming out.

Investor sentiment is somewhat of on a rise as well.  The Chicago Board Options Exchange Volatility Index (VIX), fell 1.1% to 35.79.  The index measures the cost of using options as insurance against declines in the S&P 500, and is to its lowest levels in the last six months.

Black gold continues to linger around the $50/barrel mark.  Despite a slow economy, a surplus in supply, a drop in industrial activity and a fall in immediate expected consumption, many speculators believe that a economic rebound is imminent and the demand for crude oil will rise and outpace supply, making the commodity extremely valuable.  Additionally, investors are flocking to crude as a safety net.  Crude was trading north of $50/barrel in morning trading.  The United States Oil Fund (USO), is up about 0.3% in intraday trading, despite being down about 11.5% year to date.

The Dow Jones Industrial Average was up about 0.8%, the S&P 500 gained about 0.2% and the Nasdaq dropped about 0.6% in intraday trading.

Kevin Grewal contributed to this article.

So the million dollar question is why does the VIX move in the opposite direction of the markets?  The answer is options. Generally, when the market tumbles, speculators, hedgers and investors buy options for several different reasons.  As more buyers come into the market, there is upward pressure on option prices, states Mark Wolfinger of Minyanville.  The VIX generally increases during these times.

The opposite is also true.  When the markets are rallying and gaining ground, there is no urgency to hedge and panic is absent, therefore bringing the trading volume in calls down.  This doesn’t mean that no one is buying calls, some are, but most are selling options, sending the VIX down.

These are general rules and lately we have seen from divergence from the norm.  There have been bullish periods were the VIX increased and bearish periods were the VIX decreased.  As for right now, the VIX is around 43, which means that there is a 68% chance that the realized market volatility will be less than 43 and a 32% chance it will be higher than 43 30 days from now.

The aforementioned is exactly what the VIX is supposed to represent: An estimate of future volatility in the options market.  Only time will tell if it more than just a measure of volatility and is a measure of fear in investors, as well.

Kevin Grewal contributed to this article.

As the stock market is trending down these days, there are indexes that track volatility that are up, and two new exchange traded notes began trading last month that help track this movement. Jia Lynn Yang for CNN Money reports that on Jan. 30, Barclays launched ETNs designed to track the Chicago Board Options Exchange Volatility Index, or VIX.

The VIX, which has received more attention than usual in the last year, gauges investor sentiment. High levels of market fear is reflected in a higher VIX.

These new tools allow investors to buy or sell the implied volatility of the S&P 500.

Trading in volatility is short-term, with credit risk attached to the notes, and the indexes these notes follow are volatile themselves; that said, the issues factored in, trading volatility by using these new ETNs probably makes more sense for sophisticated professional investors and traders than for small buy-and-hold investors.  They are definitely meant to be short-term trading vehicles.

That’s not necessarily bad, but if you’re an investor it’s not something you can buy and tuck into your portfolio and forget about, either. The ETNs are:

• iPath S&P 500 VIX Short-Term Futures ETN (VXX)
• iPath S&P 500 VIX Mid-Term Futures ETN (VXZ)
  

Despite investor nerves about exchange traded notes (ETNs) and their inherent credit risk, along with general market nerves, Barclays has two new ETNs that give investor access to volatility tracking.

The introduction of this new asset class will enable sophisticated investors to protect themselves from the next big crash, and it also provides useful information to average investors.

Volatility, Explained. For those of you who don’t know what the significance of volatility is, it is the estimate of the certainty of what investors, traders and speculators believe the bid/ask price of a security is. To take it a step further, there is a negative correlation between volatility and stock prices, meaning as volatility increases, stock prices decrease. For a near term measure of this instability, turn to the VIX index.

How They Work. These ETNs don’t actually track the VIX index itself, they track a basket of rolling volatility futures, states Bradley Kay of Morningstar. These ETNs will actually produce a negative return and the yield on the cash that serves as collateral for the futures helps dampen the losses.

As we all know, there are no free rides. If you want to pick up astonishing returns, you must be willing to stomach huge risks and if you want stability and safety, be ready to give up some of the returns. These ETNs are fairly tricky, familiarize yourself with how they work and don’t overextend yourself if you do choose to utilize them.

The Details. The iPath S&P 500 VIX Short-Term Futures (VXX) and the iPath S&P 500 VIX Mid-Term Futures (VXZ) both come with a 0.89% expense ratio. They give investors tools to hedge their portfolios against plunges by using futures contracts, says Hannah Glover for Ignites.

It was recently announced that Northern Trust is shutting down its NETS line of ETFs- the ETFs focused on individual countries. For those of you that don’t know, if you own an ETF that closes, you will be paid the net asset value calculated on the final trading day, which may create an unwanted taxable event.

This closing doesn’t mean it is all gloom for the ETF industry- actually it is far from it. Here is a list of some of the new players in the market, reports Roger Nusbaum of TheStreet.com

• Barclays just launched iPath S&P VIX Short-Term Futures ETN (VXX) and iPath S&P Vix Mid-Term Futures ETN (VXZ) to track the VIX.
• iShares recently launched two new bond funds, the iShares S&P/Citigroup 1-3 Year International Treasury Bond Fund (ISHG) and the iShares Barclays MBS Bond Fund (MBB).
• State Street just introduced the SPDR Barclays Capital Motgage Backed Bond ETF (MBG) and the SPDR Barclays Capital Short-Term International Treasury Bond ETF (BWZ).
• 6 ETFs have been launched by RevenueShares using a revenue-weighting strategy.

With improving technology, innovation, creativity, continuously changing market conditions and the desire of both investors and money managers to gain access to all markets and sectors, the introduction of new ETFs and the demise of “unfit” ETFs will be no stranger.