Are you concerned about a stock-market correction in the short-term? If the answer is yes, take a look at iPath S&P 500 VIX ST Futures ETN VXX, which represents the CBOE Volatility Index (VIX). VXX typically goes up when the stock market goes down. Let us start by looking at the annotated chart that shows the correlation between S&P 500 represented by ETF SPY, and VXX.
Please click here to see the annotated chart of VXX.
Here are the key observations from the chart:
- Every time the stock market dips, VXX goes up. Thus VXX provides a good short-term hedge against market decline.
- Take a look at what happened in October 2014. S&P 500 went down by 7%, but VXX went up by 52%.
- It takes only a small quantity of VXX to protect the portfolio. In this respect, VXX is an efficient use of capital to hedge.
- As the chart shows, the last time VXX dipped to a new low, it was followed by a stock-market correction and up spike in VXX.
- As of this writing, VXX is hitting a new low. If the past patterns hold, a correction may be coming. It is important to remember that in the stock market, nothing works every time.
- VXX is a measure of fear in the market. The low level of VXX at present indicates lack of fear among market participants…Read more at MarketWatch
You are receiving less than 2% of the content from our paid services …TO RECEIVE REMAINING 98%, TAKE A FREE TRIAL TO PAID SERVICES.
Please click here to take advantage of a FREE 30 day trial.
Check out our enviable performance in both bull and bear markets.
