Stocks quoted in this article:
Based on the Runs Test we did yesterday, we unsurprisingly found no evidence of day-over-day momentum in the CBOE Volatility Index (INDEXCBOE:VIX). We surprisingly found little momentum in the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) either, though I suspect momentum in an index or a stock itself is more evident within a session than from one session to the next.
But those tests were so fun, I figured I'd run one more, this time on our good friend the iPath S&P 500 VIX Short-Term Futures ETN (VXX).
In nearly five years of trading, VXX has gone from a reverse-split adjusted initial price of $6,400 to the mid 40's. So you'd think there's some momentum there, right?
Well, there's basically none. VXX has traded for a total of 1,224 days now, 490 of which have seen VXX close up on the day.
The Runs Test formula predicts VXX should have seen 588.8 "runs" since inception. In actuality, VXX has seen 579. That's ever the slightest evidence of momentum, but not even close to anything resembling statistical significance.
Like VIX, this isn't terribly surprising. There are no day-of-week biases in VXX so it was perhaps more likely to exhibit some signs of momentum. But as a derivative of a derivative, there's no real reason VXX should follow anything resembling a chartable pattern. It's a decaying asset thanks to the almost permanent contango in VIX futures and the equally persistent premium of VIX futures to VIX itself. The Runs Test formula adjusts for the fact that VXX will "lose" more days than it wins, so what may seem like momentum is really just VXX's propensity to decline.
I'm actually surprised VXX has seen as many "up" days as it has. That's pretty impressive that VXX has lifted on 40% of its trading days, yet managed to lose over 99% of its value in under five years.
In any event, let me take the opportunity to reiterate points that can't be reiterated enough. Don't buy and hold VXX. Ever. If you expect a market dip or a volatility lift, by all means take a trading long. But you better keep those time frames short. And if you want to chart something, use VIX itself, NOT VXX. I don't love VIX charting either, as it doesn't behave like a stock behaves (defined floors, tendency to mean-revert, et al.). But at least VIX can move in coherent patterns; charting VXX resembles charting a put option.
Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.