ETF Periscope: Late Spring Volatility Likely to Segue into Summer

"Will you succeed? Yes you will indeed! (98 and 3/4 percent guaranteed.)" -- Dr Seuss

The VIX is looking a little bit jumpy as of late, perhaps reflecting something of a rising wariness among investors in terms of risk.

Can the Bulls be standing on something of a slippery slope, about to slide towards a trend reversal? Or is it just a seasonal thing, with investors tightening up their portfolios a bit prior to summer?

Though Wall Street ended with its key indices landing nicely in the black, courtesy of the equity market’s overreaction to some moderately good news from the Labor Department last Friday morning regarding the most recent jobs numbers, the expanded range of daily volatility levels experienced throughout the week should serve as a warning that the summer may not end up being just a sweet little holiday at the beach.

For the week, the Dow Jones Industrial Average (DJIA) advanced 0.9%, the benchmark S&P 500 Index (SPX) added 0.8%, while the Nasdaq (COMP) gained 0.4%, as all three of the major indices managed to recoup at least a portion of the prior week’s losses.

But it was the increased range of the Chicago Board Options Exchange Market Volatility Index (VIX) over the course of last week’s five trading sessions that warrants note.

The VIX landed at 15.14 at week’s end, pretty much where it started the year. But unlike the general equity market, the VIX serves as a sentiment gauge, as reflected in its nickname “the fear index,” and its overall gains and losses hardly tell its true story.  

When the VIX travels in a tight daily range, say, of about 3 - 4%, as it has for a good portion of 2013, it generally reflects market confidence. Once it starts moving in a much higher range, 7 - 10% or more, as it has done for much of the last two weeks, it can serve as a telltale sign that lack of conviction is emerging amongst investors.

Maybe that is as it should be.

While it’s true that the jump in jobs was more than many economists had predicted, which is usually enough to send the market upward, the actual number of new jobs created in May (175,000) was not significantly higher than consensus expectations. In addition, a high percentage of those jobs (55%) went to positions that paid less than average wages.

That is hardly a recipe for expanded, long-term growth.

The other, darker side of the improved jobs numbers is that it might give Ben Bernanke and the Federal Reserve Bank the cover they need to cut back on bond purchases, something that will hardly be appreciated by most investors.

So on the surface, though the market ended the week on a high note, enough to carry it into positive territory for the week, the VIX may be serving as a more accurate indicator of the way investors are feeling towards the near-to-mid future, as opposed to the short-term, knee-jerk reaction always accompanying the most recent round of noise.

What the Periscope Sees

The Sabrient SectorCast ETF Rankings rate each of the ten U.S. industrial sector iShares (ETFs) by Sabrient’s proprietary Outlook Score and are revised on a weekly basis. This week, the Financial Sector is at the top of the rankings, followed by Technology and Health Care.

Here is the current list of some of the top performing Financial Sector ETFs year-to-date, as of the first week of June:

KIE -- SPDR KBW Insurance ETF, +23.27%

FXO -- First Trust Financial AlphaDEX Fund,  +20.93%

IYF -- iShares Dow Jones US Financial Sector Index Fund, +20.35%

XLF -- SPDR Financial Select Sector Fund, +21.84%

VFH -- Vanguard Financials Index Fund, +19.79%

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.

ETF Periscope
daniel / Tag: DJIA, COMP, SPX, VIX, KIE, FXO, IYF, XLF, VFH, PSP, WMT Volatility, FED, Federal Reserve Bank, BERNANKE /