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Research:
Over the past several months, the Volatility Index (VIX) has received its fair share of publicity on ETFguide.com. A few weeks ago, this was due to its anemic readings, which had fallen to levels not seen since July 2007. Courtesy of last week’s Greek-inspired scare, the VIX skyrocketed 175% from bottom to top. The first time we featured the VIX (or VXX) was on 9-14-2009. At the time the VIX traded at 23 and we felt more downside was in store. Obviously we underestimated the power of complacency. The VIX fell all the way to 15.32 on 4-12-10 and hovered around the 16 level for a week. On 4-22-10 we featured the VIX for a second time along with the chart below and the iPath S&P 500 VIX Short-Term Futures ETN (VXX – prior recommendations are illustrated with a red arrow) as ETF Pick. As the second chart shows, last week’s seesaw performance has taught us two lessons. 1) Bear markets move faster than bull markets and one “bad day" can erase several months worth of gains/losses. 2) VXX does not track the VIX well but is the only ETP choice tied directly the volatility in stocks. With today’s push (5-12-10), the market has opened an attractive trading opportunity for disciplined traders/investors. Here’s why: The S&P has retraced a bit more than an 61.8% of the previously lost points and is now butting against the 50-day simple moving average (SMA) at 1,172. 1,181.61, a key level highlighted in the 5-2-2010 Technical Forecast is also not far away. If the post-4-26-2010 decline is really the next powerful leg down, prices should not retrace past the 1,172 - 1,182 range. Additionally, if the decline is for real, prices should drop below Thursday’s (5-6-2010) low of S&P 1,066. With a stop-loss at 1,182 and a target below 1,066, the current market constellation presents a very good trading opportunity. Depending on your risk tolerance, you may use any of the ETFs listed in the February 2010 newsletter (page 7, 8) or Short & Leveraged ETF Reference Guide (available under “Bonus Reports”). Once again, we recommend using 1,182 as a trigger point for stop-losses. If 1,182 is broken, we might be looking at another recovery high (above S&P 1,220) down the road. |
