Thursday, February 9, 2012

Oh, It's TVIX Time Again

Daily Market Snapshot

More slow grind to the upside

Volatility Indicator

A change from green to yellow is an indication
that investors are beginning to get a little skittish.
No big alarm yet, they've just been a little more cautious
the last couple days.

When investors start getting nervious about the market's prospects they begin buying protective options, a form of insurance against possible market declines.This activity can be tracked via the VIX Index, the volatility index.

The earliest indication of a change of sentiment amoung investors is a rise in the VIX or TVIX in this case.

TVIX is a 2x leveraged ETF that rises dramtically when fear starts to take hold of market participants. Big spikes in the TVIX are a very good indication of trouble ahead.

It is still  too early to tell if this TVIX rise is telegraphing a pullback in the market, but it is worth paying attention to. The market has staged a nice low-volatility rise for the last few months and many have been anticipating a correction.  Is a correction iminent? Maybe.

I bought TVIX for my personal account the day before yesterday; at the same time I bought it's unleveraged sibling VXX (the VIX related ETF) in the GWM Long/Short Folio. These are very short-term positions used to hedge our model portfolios against potential market declines.

The TVIX ETF is only suitable for the Go-Getter Model because it is extremely volatile; It was up about 10% today. VXX is a bit more tame; it was up about 5% today. As I write, futures are indicating a lower open tomorrow. If these little firecrackers pop tomorrow I may take some profits - we will  see.

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