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‘Subdued’ VIX ETFs Suggest Complacency


The S&P 500 is down about 6% from its September high but volatility-linked ETFs that track VIX futures contracts have hardly budged, suggesting investors aren’t too worried about further damage in the market.

The CBOE Volatility Index, Wall Street’s fear gauge, has been “subdued during the present correction,” says Investors Intelligence technical analyst Tarquin Coe.

“Correction bottoms typically coincide with this thing exploding to the upside with a sharp spike,” he said in a newsletter Monday. “As yet, there has been no sign of that. Complacency remains.” [VIX ETFs: Chart of the Day]

The iPath S&P 500 VIX Short Term Futures ETN (VXX) was off 5% on Monday afternoon.

The exchange traded note was down 20% for the three months ended Nov. 9, according to Morningstar. The ETN is testing its 50-day simple moving average — it has been below this indicator since mid-June.

VXX and other volatility products don’t exactly replicate the spot VIX, since they are designed to follow futures contracts. Therefore, they can be hurt by the so-called roll trade and “contango” in VIX futures. [Primer on VIX ETFs]

The spot VIX chart “shows trading moving up gradually from the bottom of its 2012 range,” said Coe at Investors Intelligence. “That move is barely half way and momentum is not overbought. A spike, should it occur, would encounter resistance between 25 and 28.”

CBOE Volatility Index

iPath S&P 500 VIX Short Term Futures ETN

Full disclosure: Tom Lydon’s clients own VXX.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.