Record volume in VXX

[Horace Kent]

Calm down..........

LOL.....This isn't a sequel to my last post about the VXX. While, for me personally, the jury is still out about the utility of it as a hedge......I think it depends on context...

But, the purpose of this post is that the VXX did trade record volume today, and sported a tasty reversal.

A lot can be gleamed from this vehicle, I believe, and, a lot can be inferred - which can be dangerous. Regardless, the record volume does imply that expectations are for a (short-term at the least) bottom for volatility.

This could keep a bid beneath gold and miners...(pure speculation on my part)

But, I think the VIX will have a hard time getting over 35.

If sentiment is right.......And the market does make a correction here. I think the market (SPY) could test the rising 50-dma........which would be an excellent spot for folks who have yet to commit cash to the market to jump on board.

Another interesting link about the VIX
http://www.cboe.com/publish/ResearchNotes/Research_notes_5-1-09_Issue_2.pdf

[aiki14]

My VIX predictions have gone horribly wrong in the past year, so I won't comment on the absolute value and what that means, but the trend has been a pretty good indicator of market sentiment and I do keep it up there on my data screen for a confirmation of other trading indicators. As to what increased volume in any of the volatility metrics tells us, it's hard to say, but the smart money is in them more so than the retail guys so it bears paying attention to. Perhaps as with stocks volume confirms price and in this case volume confirms sentiment.

[Horace Kent]

I thought I would update the numbers today, because they are encouraging for those of us with hopes that the VXX can be a useful hedge, and vehicle for speculation.

SPY - Down 1.44% SDS - up 2.94% BGZ - up 4.34%. Cash VIX up 8% June VIX futures and VXX both up 5.58%.

Tuesday before the 3rd friday on each month is the last trading day for VIX futures, with settlement on Wed. So, this week will see VXX as close to cash VIX as it can be. Remember, the VXX rolls over 1/30th of its position in the front month to the "on deck" contract each day. And.....expectations for future volatility dampen with more time, so don't look for the VXX to track cash VIX closely at all around the first week or so of each month.