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Time to Buy Volatility Again?

by John Rubino on September 29, 2013 · 4 comments

The following chart tells two stories. The first is that the deficit spending and debt monetization of the past few years has calmed the markets. Volatility (more accurately fear), as measured by the VIX index of S&P 500 options, has meandered back below 20, implying that most financial market players are pretty relaxed about the world’s near-term prospects.

VIX 2013The second thing this chart says is that whenever the VIX drops into the 10-15 range for an extended time, craziness ensues. A lack of fear leads to overoptimistic investment decisions, which in turn produce big corrections. The resulting turmoil in the options markets is what the VIX measures.

In most cases, a VIX move back above 20 is followed by a quick spike above 30 and sometimes 40. With debt ceiling negotiations deadlocked and the deadline approaching, US stock futures are down nearly 1% as this is written on Sunday evening, implying that traders are spooked and pointing to a possible VIX move above 20 next week. Then, if history is any guide, the fun begins.

The simplest way to play a spike in volatility is with a “long volatility” exchange traded note (ETN) like VXX.  If VIX spikes, VXX will keep it company. But be aware that VXX is strictly a trading vehicle. It uses derivatives to replicate the VIX and (without going too deeply into how it happens) over time these instruments depreciate, causing VXX and other similar ETNs and ETFs to gradually lose value. So place the bet and then, win or lose, close it down within a month. But it might be an interesting month.


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  • http://theyenguy.wordpress.com/ theyenguy

    Yes, it’s time to buy Volatility, and it’s time to buy and take possession of gold bullion.

    The decline in the price of Gold, $GOLD, since late August 2013, is a buying opportunity, as the Gold ETF, GLD, is in an Elliott Wave 3 Up, from its early July 2013 bottom of 117.5, as is seen its Weekly Finviz Chart. The Elliott Wave 3 Ups, are the most dramatic of all economic waves, and create the bulk of wealth gains, of all of the ascending five waves

    On Thursday, October 3, 2013, Spot Gold, $GOLD, closed at $1,316, with support lower at $1,300 and a strong floor at $1,275.

    The chart of the Gold ETF, GLD, rose slightly, to the edge of a massive consolidation triangle, to close at 127, from which it will either break out, or break lower. Either way, it is wise to Dollar Cost Average, an investment in the purchase of gold bullion, as in the age of authoritarianism, the possession of gold and diktat, will be the two forms of sovereign and sustainable wealth.

    The late September 2013, S&P 500, $SPX, price of 1709, and SPY price of 172, reflects an Elliott Wave 5 High. Thus the October 1, 2013, rally marked the short selling opportunity of a lifetime, as in a bull market one buys into dips, but in a bear market, one sells into pips.

    When fiat money died Friday September 20, 2013, with the trade lower in World Stocks, VT, Major World Currencies, DBV, and Emerging Market Economies, CEW, a new form of money rose to govern mankind’s economic transactions, that being diktat money.

    Thursday, October 3, 2013, was a bearish day, as ETF Daily News reports Outer limits of monetary policy and inflation and the Finviz Chart of the Market OFF ETN, OFF, rose, and the Yahoo Finance Chart of Volatility, ^VIX, also rose, stimulating Volatility ETFs, TVIX,VIXY,VIXM, higher. The Great Bear Market that commenced Friday September 20, 2013, recommenced Thursday, October 3, 2013, as is seen in the 200% Bear Market ETFS, such as BIS, FXP, SQQQ, SDD, SSG, trading higher.

    Nations trading lower included

    Indonesia, IDX,

    Mexico, EWW

    Philippines, EPHE

    Turkey, TUR

    Brazil, EWZ, and Brazil Small Caps, EWZS

    Sectors trading lower included

    Inverse Volatility, XIV

    Solar, TAN

    Internet Retail, FDN

    Nasdaq Internet, PNQI

    Biotechnology, IBB

    Homebuilding, ITB

    US Infrastructure, PKB

    Media, PBS

    Design Build, FLM

    Small Cap Pure Value, RZV

    Aerospace, IBB

    Small Cap Industrials, PSCI

    Industrials, XLI

    Paper Producers, WOOD

    Automobiles, CARZ

    Steel, SLX


    Consumer Discretionary, IYC

    Retail, XRT

    Yield Bearing Sectors trading lower included

    Utilities, XLU

    Global Real Estate, DRW

    Real Estate, IYR

    Leveraged Buyouts, PSP

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