As the equity markets reel, the CBOE Volatility Index and VIX-related exchange traded funds have jumped on the risk-off turbulence.
On Wednesday, the iPath Series B S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) jumped 9.5% and the ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) advanced 9.1%, both breaking back above their short-term resistances at the 50-day simple moving average. Meanwhile, the CBOE Volatility Index climbed 10.9% to 23.7.
“Today is going to be all about the fall of cryptocurrencies and the crash has definitely had a spill over effect into equity markets, which are already burdened with inflation worries,” Dennis Dick, head of markets structure, proprietary trader at Bright Trading LLC, told Reuters.
In a sign investors were stepping away from speculative plays, Bitcoin experienced its worst one-day loss since March last year, plunging as much as 30%.
The markets have also come under pressure as traders step back on growth bets in the face of rising inflationary pressures and elevated valuations.
CNBC’s Jim Cramer has warned that volatility could be here to stay, and even extend to June.
“The charts, as interpreted by Mark Sebastian, suggest that the next month-and-a-half could be a pretty rough time for the stock market,” the “Mad Money” host said on CNBC. “You may think we’re out of the woods, but the fear gauge says otherwise.”
Since mid-April, the so-called fear gauge has increased almost 30% from its lows. Meanwhile, the S&P 500 is 0.5% lower for the same period.
“A flat market with a rising VIX is exactly what you see at the beginning of what’s known as a volatility swell,” Cramer added. “According to Sebastian, this is when the VIX rises for an extended period of time, usually 2 to 6 weeks, and the market has a genuine correction.”
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