VIX Futures Flash Warning Signs

Some negative developments in the VIX futures term structure occurred today with a flattening of the term structure (see full current term structure data here):
 - Spread between M1 and M2 narrowed to -0.75
 - Spread between M4 and M7 narrowed to -1.15
 - Spread from M1 to M7 narrowed to just -3.15 points

The roll yields for XIV and ZIV fell to 1.1% and 1.5%, respectively.

To put the M1-M7 spread in context here is a view of the slope of the VIX futures (left axis) along with the price on XIV (right axis). A slope reading below 0.2 has typically been market negative in the very short term over the past few years (today's closing was 0.19).

The rise in VIX to 14.49 (+7.2%) brings it to within 5% of front month futures and increases the risk of a larger VXX spike in the short term. The volatility risk premium remains negative, with actual volatility over the past month (HV21) at 14.77.

The VXX forecast VXX spike gauge reflects these changes with a reading of 5.8. When the reading on here is above ~5.5 you can generally expect some choppiness in the price of XIV & VXX as a best case, and worst case of some large VXX moves upward.

Because of these current conditions and a multitude of warning signals I'm still not interested in a XIV long position. As I've suggested in the past week herehere, and here it makes sense to look into some cheap VXX calls as a hedge if I were long XIV/SVXY or be out altogether.

. . . . . . . . . . . . . .

Stay up to date by having posts sent directly to your RSS feed or Email.