VXX ETF

The upcoming US election has caused a pause in the S&P 500's uptrend and elevated the VIX, reflecting market uncertainty. Historical patterns suggest implied volatility spikes pre-election but drops post-election, leading to my sell rating on VXX. VXX is a risky, high-cost ETN with significant contango, making it unsuitable for long-term holding.

VXX is an exchange-traded note (ETN), not an ETF, meaning it's backed by Barclays and carries additional bankruptcy risk. The fund tracks short-term VIX futures, making it highly sensitive to volatility changes. VXX typically loses value over time due to the negative roll effect. The August 5, 2024 VIX spike was a rare event, unlikely to repeat soon.

For investors seeking momentum, iPath Series B S&P 500 VIX Short-Term Futures ETN VXX is probably on the radar. The fund just hit a 52-week high and is up 173.7% from its 52-week low price of $39.98/share.

Geopolitical tensions in the Middle East have increased, as Iran retaliated against an attack on its embassy in Syria by launching an attack on Israel. To protect their portfolios, investors may want to consider the VXX ETN, which holds long positions in near-month VIX futures. Given the elevated geopolitical risks, it may be wise to decrease portfolio exposures or allocate a small portion to hedges like the VXX.

The end of the year typically sees rising stock prices and low volatility, but the CBOE Volatility Index may have an opportunity to shine soon. Correlations among sectors and equities are low, which can make it challenging for volatility to increase. VXX, a volatility-focused product, has weak momentum but may be worth considering for an early to mid-January entry point.

The iPath Series B S&P 500 VIX Short-Term Futures ETN is an inefficient hedge against market volatility due to concerns involving tracking error, negative roll yield, and timing difficulties. Multi-year performance of VXX has been abysmal, resulting in two 1:4 reverse splits since April 2021. A position in VXX is unlikely to be of much value despite the presence of many potential drivers of volatility, including the conflicts involving Russia/Ukraine and China/Taiwan.

A new bull market requires a dovish Fed and positive growth prospects contrary to the hawkish Fed and negative growth prospects we've now. It's difficult/impossible for the S&P 500 to overcome the 4200 level when only a few horses are pulling the 500-issue wagon.