VIX fell 14.87% on Wednesday as traders reacted to the Fed’s decision to scale back its bond purchases. ETFs based on VIX are 4-8 times more volatile than the broad stock market and volatility ETFs could provide short-term buying opportunities if markets reverse their gains in the next few days.
VelocityShares Daily 2x VIX ST ETN (NYSE: TVIX) fell 13.11% yesterday. This ETF has a 100-day historical volatility of 89.85. As a point of reference, SPDR S&P 500 (NYSE: SPY) has a 100-day historical volatility of 10.39. If stocks reverse the short-term gains that occurred after the Fed announcement, TVIX could be among the most profitable trading opportunities.
ConnorsRSI has fallen to 6.95 and the 2-period RSI is also oversold at 2.42.
It is important to remember that VIX ETFs are not the same as VIX. Over the long-term or in markets that are moving quickly, there can be significant differences between how the VIX index and ETFs that track VIX behave. It is important to use the ETFs rather than the index for trading signals.
In trading yesterday, TVIX was stretched more than 10% below its 10-day moving average and could be a buy on additional weakness. The Best of the Professional Traders Journal: Market Timing, first published in 1999, identifies a number of trading strategies, including Connors VIX Reversal signals that can be applied to volatility ETFs.
Now let’s look at the most overbought and oversold stocks (according to ConnorsRSI) heading into trading for Dec 19, 2013. ConnorsRSI is a proprietary and quantified momentum oscillator developed by Connors Research that indicates the level to which a security is overbought (high values) or oversold (low values).
BIN (Progressive Waste Solutions) is the most oversold stock with a ConnorsRSI reading of 3.10. LinkedIn (LNKD) is the next stock on this list with a ConnorsRSI reading of 5.65. The 100-day volatility of LNKD is twice as high as the 100-day volatility of BIN and LNKD could be the better trading opportunity.
TVIX (VelocityShares Daily 2x VIX ST ETN) has a ConnorsRSI of 6.95 and is the most oversold non-leveraged ETF heading into today’s trading.
WAB (Westinghouse Air Brake Technologies Corporation) is the most overbought stock with a ConnorsRSI reading of 98.60.
EPU (iShares MSCI All Peru Capped) is the most overbought ETF with a ConnorsRSI reading of 94.60.
TradingMarkets Lists provide users pre-populated lists of stocks and ETFs identifying symbols with overbought and oversold ConnorsRSI and Bollinger Bands® readings. The Screener Lists are powered by The TradingMarkets Screener.
All data is as of the end of day on 12/18/2013.