Recent XIV Action May Bode Well for Bulls
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No options trade on the VelocityShares Daily Inverse VIX Short-Term ETN (XIV - 30.54), but what I really like about it is how it has a strong tendency to respect round-number levels (5-point intervals from 20 to 35 are shown on the one-year chart above), and it also has a tendency for volume spikes near short-term bottoms (equating to short-term tops in the VIX).It's not infallible and it's not always a leading indicator (it broke 35 concurrently with the market decline last Friday), but it can provide some decent clues by checking out the round-number levels to see if they are holding as support or resistance and also by checking for volume spikes.XIV hit a low Wednesday at 30.07 (after the Fed announcement), and the day's volume of 29.5M spiked to the highest level since 30.2M on Oct. 10, 2013. (On Monday, XIV reached a low of 29.58, but closed at 31.49.)Based solely on the XIV at this moment, the bulls would deserve the benefit of the doubt. Meanwhile, it's also worth noting that the Nasdaq Composite (COMP - 4,051.43) closed Wednesday above a key level of interest at 4,039, which represents 80% of the index's March 2000 all-time closing high of 5,048.60.
Along the lines of a potential bottom in the XIV, note that the VIX (17.35) closed below 18.21 yesterday and has not experienced a close above this level during this latest market pullback. 18.21 is 50 percent above the 1/10/14 closing low of 12.14. Multiple, but not all, VIX peaks have occurred 50-percent above a prior low during the past couple of years. A VIX peak would coincide with an XIV bottom.
The VXX is one I'm watching. It is the iPath S&P 500 VIX ST Futures ETN and it is designed to provide investors with exposure to short-term VIX futures. Well, it went right up to its downward sloping 80-day moving average recently and is now finding resistance. This trendline has been rather significant in the past.
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