Nothing stinks here. XIV does a pretty good job of tracking the VIX Inverse Short Term Futures Index. Look at the historical closing values of the underlying index and compare that to the actual returns of XIV and you'll see that XIV does an excellent job of tracking that underlying index.
Sentiment: Strong Buy
It is nice to see EWZ finally showing some relative strength.
Although most market pundits have all but given up on Brazillian equities, perhaps Dilma's team can finally right this sinking ship by stamping out inflation. At a minimum, raising the interest rate should help Brazil's currency to strengthen.
It would be nice to see EWZ go on a run to the 40s...
XIV could definitely fall further from here - during the 4-month stretch between July and November 2011, XIV dropped about 74%. I doubt that will happen this time unless Russia defaults on its debt or the market really hates whatever the ECB announces this Thursday.
In 2011, XIV closed at 19.17 on 7//7/11 and had dropped 50% by 8/10/11, when it closed at 9.25. It continued dropping for 3 more months until it bottomed out at 4.91 on 11/25/11. It took at additional 3 months before XIV finally closed above 9.25 again and then it continued its upward ascent until mid-2014.
If the news from the ECB is good and when oil finally bottoms, maybe then we'll finally see solid gains in XIV after the past 3 months of volatility...
You may be right, although I hope you are wrong. However, even if XIV does dip to single digits, I believe that the long-term trend for XIV is still up
2003 and 2004, in particular, would likely have been phenomenal years for XIV. The avg. % daily increase in VIX during each of those calendar years was a negative value. -0.102% during 2003 and -0.009% during 2004.
I looked back at the historical closing values of the VIX dating back to 1990 and also calculated the daily % increases in the VIX. I compared these calculations against the actual closing values for XIV and the estimated closing values that are in a chart dating back to March 2004.
I found that at least since calendar year 2005, XIV rises in a given year provided that the average value of the % daily movement of the VIX is low, regardless of the average value of the VIX for the year. For example, in 2009, the average closing value of the VIX was 31.479, but the average % daily increase in the VIX was -0.084% - during this year, an estimated XIV would have risen about 111.65%. During 2008, on the other hand, the average closing value of the VIX was 32.693, but the average % daily increase in the VIX was 0.537% - during this year, an estimated XIV would have dropped about 72.033%.
Starting with the 2005 calendar year, XIV either increased or is estimated to have increased in value during 6 of those years (2005, 2006, 2009, 2010, 2012, and 2013). The average % daily increase in the VIX during each of those years was 0.159% or lower. XIV either decreased or is estimated to have decreased in value during 4 of those years (2007, 2008, 2011, and 2014). The average % daily increase in the VIX during each of those years was 0.409% or higher.
If the average % daily increase in the VIX is indicative of annual increase in XIV, then it appears as though XIV would have increased during almost every year dating back to 1990, except for 1990 (avg. % daily increase in VIX was 0.448%) and possibly 1996 (avg. % daily increase in VIX was 0.371%). Surprisingly, the avg. % daily increase in VIX during the bear market occurring during the 2000-02 years were 0.203%, 0.100%, and 0.237%, respectively.
Although it is painful, I think we really need volatile stretches like this to set the table for the extend extended period of low volatility and high contango.
You are correct - the lowest closing value for their calculation of a hypothesized XIV in 2004 was 1.99266978371439, which occurred on March 26, 2004. On December 31, 2013, XIV closed at 34.38. That is a total return of 1,646.4%. The annualized return over the period of approximately 9.75 years between 3/26/04 and 12/31/13 was about 33.92%.
I do wonder, however, how well XIV would perform during an extended period of volatility. Between August 1998 and March 2003, the average closing value of the VIX index was just over 26. How would XIV have performed during that nearly 5-year stretch of time?
Although I hate to say it, maybe the market is going to be volatile all year? But I do agree that when the markets do finally settle down, XIV should soar much higher.
By the way, XIV is not a buy-and-never-sell type of speculative investment. Instead, I think that the way to make money off XIV is to periodically re-balance a position to lock in gains when XIV and purchase more shares when XIV is down. For example, if you put $10,000 into XIV, 6 months later you could re-balance the value of your holdings back to $10,000. If, for example, XIV has increased 30% and your position is now worth $13,000, you could sell $3,000 worth of XIV to get back to $10,000. On the other hand, if XIV has dropped 30% such that your position is now worth $7,000, you could purchase an additional $3,000 to bring the value of your XIV shares back to $10,000.
You need to remember that close to 80% of the time, the VIX Short Term Futures Index is in a state of contango. That will work to your advantage if you hold XIV for a sufficiently long period of time...
The VIX index is high right now. I see market pundits mention that the VIX is right around its average value of about 20. Although this is the average closing value of the VIX dating back to 1990, the average value is skewed by instances of extremely high VIX closing values, such as those in the 70s and 80s during the height of the financial crisis. It may make more sense to consider the median closing value of the VIX index dating back to 1990, which is about 18.17.
Of course XIV will go higher, although it seems pretty clear that it is going to continue to trend lower first. On 1/13/15, XIV closed at 28.11, a drop of 40.5% from its all-time high closing value of 47.27 reached on July 3, 2014. The VIX Short Term Futures Index is certainly capable of falling further.
In 2011, XIV dropped about 74.4% from a closing value of 19.17 on 7/7/11 until it bottomed at a closing value of 4.91 on 11/25/11.
I have also seen a spreadsheet of calculations of what XIV would have closed at dating back to 2004 based on the values of known VIX futures products. According to the spreadsheet, XIV would have closed at 23.36 on 2/22/07 and would have dropped all of the way to 1.72 when it finally bottomed out on 11/20/08. That is a drop of about 92.6%!
I cannot say where the bottom is for XIV. I believe that XIV will almost certainly be in an extended uptrend for longer than it is in an extended downturn. However, when XIV is in a downtrend, it will likely drop far more quickly than the rate at which it is likely to increase during an uptrend. That being said, there is no doubt in my mind that if you hold XIV for a hold enough period of time, it will eventually hit a new all-time high. I just hope we don't have to wait years to see that happen...
It is possible that much of the current volatility is due to the continuing drop in oil prices. Perhaps this will continue until oil finally bottoms out...
I don't know whether that will happen. Maybe everyone on this board would be better off simply investing in MO or PM and reinvesting the dividends.
TQQQ and UPRO have been huge winners for me. I sold my LBJ - the bid-ask spread was just too big as a result of persistent thin trading. Instead, I put the proceeds from LBJ into BRZU, which has performed horribly. Luckily, I have much more money sitting in TQQQ and UPRO, which have more than made up for recent paper losses on BRZU. I have a feeling that whenever Brazil finally gets its act together, BRZU will pop 1000% of more with a 2-3 year period of time, although BRZU may certainly drop some before that even happens. I've been periodically purchasing shares of BRZU to lower my cost/share - maybe I'm making a mistake on BRZU, but I really think that markets are cyclical entities and the Dollar cannot possibly stay this strong forever and money will flow back into foreign equities and emerging markets at some point.
I bought some XIV when it dipped below 25 back in October and was hoping to sell at 50 at some point this year. Given the volatility since December, it's unclear to me whether XIV will, in fact, hit 50. So if XIV reaches the low 40s again, I may sell much of my XIV position.
I doubt that either of those will happen in 2015, although nothing surprises me anymore. I own a position in XIV, but this ETN moves so quickly and sharply. It would not surprise me to see XIV drop a little lower and then rebound to the 40s before dropping again...
It's already down another 3.6% on Monday, Jan 5th!
It really is astounding how poor this investment has been for us. I thought that Brazil would have gotten its act together by now, but that clearly hasn't been the case.
I'm not even sure what it would take for EWZ to endure a sustainable uptrend...
Volatility was relatively low and XIV was on a strong upward trajectory until the bottom fell out of the oil market a few weeks ago. Once oil finally bottoms, will volatility subside and will XIV quickly increase to 40?
Ok, so this did get worse. It looks like Russia's equities may continue to plummet until the country defaults on its debt and equities in other emerging markets, such as Brazil, are falling because of Russia and the falling oil prices. I don't know where the bottom is for EWZ...
Thanks and I hope you are correct. I've just seen so many false starts for Latin American stocks since 2010, so it's hard to believe any sustainable rally is on the way. Maybe if we're lucky, EWZ will bottom out this month and then start fresh in 2015 hopefully on an upward trajectory. If nothing else, perhaps the abysmal performance of Brazilian equities will force Dilma to continue engaging in more market-friendly policies.
How low will this piece of garbage, EWZ, go? It is hard to believe that EWZ actually closed at 102/share at the end of May 2008. SInce then it has been a huge POS and is now close to its market lows reached on March 2009 at the depth of the Financial Crisis.
Is EWZ going to break below 30? If the U.S. stock market were to take a hit, is there any doubt that EWZ would plummet even further than it already has?
I am so disappointed in the performance of EWZ...
I knew that TQQQ would close above 100 in 2014! It would be nice to see it reach 150-160 in 2015...
Sentiment: Strong Buy