When ETF’s don’t work ($VXX, $VIX)

Posted by Investing Freak on October 26, 2010
General / 2 Comments

We are all caught up in the new bubble that I would like to call the Great “Enron Task Force” (ETF).

Basically ETF’s are usually set up to mimic indices that we cannot directly buy. That is a great way to stay invested and diversified if you believe the stock market in general will do good or bad. The number of Enron Task Forces is now reaching the gazillions and “investors” are so drawn into them that they are getting bigger and bigger and bigger (can you guess already?).

Here is SPY ETF compared to the index that it tries to replicate. (Click To Enlarge)

As you can see the mirroring effect is almost so perfect that by owning SPY shares you will make nearly the same percentage as how the S&P 500 has performed.  Thats GREAT! It takes pain away from doing individual stock research. Of course if you still want to invest in specific stocks with minimal effort and AMAZING returns I would recommend Bear Sterns.  After you have made millions in Bear Sterns get your attention back to this useless post.

Hey I have an Idea! I believe Volatility will increase and VIX index will keep going higher again. Hmm “Google Google on the wall whats the best ETF of them All?” Google: VXX for the win!   So there you have it, if you want volatility there is an ETF for that.  Alright time to cut to the chase because its nearing midnight. Click Below to Enlarge the Comparison between VIX and VXX.

Notice a Difference between the SPY comparison and the the VXX comparison? Gosh I hope so or get the FREAK out of here!  They don’t mirror each other AT ALL. They Barely did before last august and from then on its a whole different story. Speaking of stories… Thanks Dan for the heads up in the comments about the “VXX Reverse Split 1:4” story.
For those that are new to stock splits a quick search can yield a lot of information but I will spare that for you by explaining in my own words what will happen here.
When VXX reverse splits in the first week of November (lets assume its at $13 on that day) it will start showing up as a $52 instead. How can they just change the price? Well If you owned 4 shares of VXX now you will own just 1 later thats how.

Ok finally getting to the finish.  A reverse split is bad because instead of increasing the amount of shares outstanding, the company is making this move to make the stock look like it has more value when in fact is the same crappy thing.  I will not be playing VXX but seeing the “oh so perfect” mirroring effect it has done so far I congratulate those who will keep shorting it via whatever method works for them and reaping profits until VXX slashes in half once again.

Thats it for now and I hope that helped clear your question Dan.  Volatility will not get a spark just because Barclays “Enron Task Force” will have a “higher price”. If you’re still confused or stumble upon other interesting things that you would like to share, the boxes are right below the post most of the time.

Happy Trading all and to all a good night!


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Volatility Index $VIX Is moving higher.

Posted by Investing Freak on October 31, 2009
Market Analysis / 1 Comment

On Friday The VIX went up 23.95%  while the market fell well over 2.5%.

VIX is a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index, it represents one measure of the market’s expectation of volatility over the next 30 day period.

With the upward movement in the past 2 weeks the VIX has successfully broken a trend line going back to November 2008
See Attached Image (Click To Enlarge)


The VIX also had a bullish candlestick pattern on the 2D frame (2 days per candlestick)
Defeniton of this candlestick pattern is quoted below from Candlesticker:

Bullish Three White Soldiers Pattern is indicative of a strong reversal in the market. It is characterized by three long candlesticks stepping upward like a staircase.


The following are two charts; one showing the Three White Soldiers pattern on the 2D chart the other showing it on the hourly.
2Day Chart (Click To Enlarge)

And finally the Hourly chart (Click to Enlarge)


What does the bullish Vix momentum mean? Well by itself it means nothing to me. But when combining it with the increasing TED Spread, Broken S&P trendline, Numerous bank failings each weekend and many more indicators then it all signals that things are not well and the jobless recovery is not going to last much longer.

As always use caution as these are my observations and I do not make decisions for anyone other than myself.
Happy Halloween! 🙂

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