Editor's Note

We cannot predict market direction but we can predict approaching volatility. I think everyone will agree that we are not likely to just sprint higher and make new highs anytime soon. We have a much better chance of continuing to see a choppy market with a downward bias in the weeks ahead. I am recommending we add a bearish position in the VXX to capitalize on that volatility when it arrives.


No New Bullish Plays


VXX - VIX Futures ETF - ETF Profile

The VXX ETF tracks one-month futures contracts on the Volatility Index of $VIX. The VXX is actually less volatile than the VIX but travels in the same direction. The VXX is highly liquid with average volume of roughly 75 million shares.

The VXX or any volatility ETP or leveraged ETF should not be held for long periods of time because the futures roll over every month will reduce the value of the position. However, it is suitable for short-term tactical trades. We closed a short on the VXX a couple weeks ago for a decent profit.

With the potential for another bout of market volatility I am recommending we go long the VXX this time. Long the VXX is the equivalent of a short position since it rises with a decline in the market.

The VXX touched 17 last Monday and that was a seven-month low. I think the odds of the VXX returning to 21-22 are excellent and returning to 25 reasonably good. Going long the VXX will be a hedge against out long stock positions.

Buy VXX shares at the open on Monday. Initial stop loss $16.75.