March 14, 2012 - Volatility Makes Big Move on Flat Day

During a rather flat day in the market, the index VIX-X, which measures the volatility in the market, steadily rose throughout the day, something that hasn't happened in weeks. The S&P 500 was down .12% while the DJIA was actually up .12%. In addition to this, the S&P 500 made a new 52-week high at yesterday and closed a tiny bit below it. Even with the flat day and the new highs in the market, a correction was expected. In trying to decipher why the volatility instruments increased today lets look at the VIX-X, VXX and UVXY charts.

We can see on the VIX-X weekly chart that the 14-15.50 range in VIX has been a base for the last 4 years. The index settled there for a couple weeks in Late 2007 and Mid 2008 BUT in the beginning of 2011 it was there for months. This week was the first week in the 14-15.50 range since last summer when the VIX increase almost 300% in a matter of a month.





Taking a look at the VXX Daily chart, there is a very conspicuous trend that has been happening the last 2 years. In yellow circles, I marked every time the ETN traded outside of its bollinger bands. It happened about 8 times (I didn't count November 2011 because it technically didn't trade outside of the BB), and every time there was a similar response. Every time it traded above its higher BB, it traded downwards the next 2 days (at least). Every time it traded below its lower BB, it increased over the next 2 days (at least). Yesterday marked the first day it traded below its lower BB (March 13th). Almost like clockwork, VXX increased today by 3.25%. I would not be surprised if tomorrow was another green day.

 


Here is the UVXY daily chart. It shows the same exact thing as the one above, only its focused on the last 3 months. You can see that in the last 3 weeks (when TVIX stopped issuing shares) volume has gone from approximately 300,000 shares a day to about 4,000,000. Today it rebounded from below its lower BB 6.3%.