Reviewing June's VIX ETF Forecasts And A First Look At July

June was a tough month for inverse VIX ETFs such as XIV and ZIV. A relatively flat term structure and somewhat skittish markets led to losses of 10.9% for XIV and 9.3% for ZIV.

Let's take a look at what the Trading Volatility daily forecasts were telling us over the past 5 weeks.

The VXX Spike Risk forecast spent nearly the entire month (from the evening of 5/28 until evening of 6/26) above 6.0, indicating an above average probability of VXX spiking. During this time we saw a rash of days with VXX gains as it rose 18%.

Looking at the chart of the VXX bias forecast vs VXX price we can see that the VXX bias spent most of June in or on the edge of VXX neutral zone (between -1 and +1) which was not enough to offset the rise of the underlying values of the VIX futures.

Similarly, ZIV suffered from the high VXX spike risk and relatively small bias of its own.

Overall, the VIX futures and market dynamics looked a bit like the May-July 2011 timeframe, which saw mostly sideways & choppy action. If we see more of the combination of a neutral VXX bias and high spike risk it will turn into a 2007-type dynamic (flat term structure and rising futures along the whole curve) which could justify VXX long positions, even with a slightly negative VXX bias.

As we look forward to July, we can see from the forecasts above that the VXX spike risk finally dropped below 5.0 on 6/26 and the VXX bias has started to grow more negative. This will create a better environment for XIV and ZIV as long as this forecast trend continues.

About the Trading Volatility Forecasts
The Trading Volatility daily bias forecasts provide important information about the headwind or tailwind of VXX, XIV, and ZIV based on the VIX Futures term structure. Over longer timeframes, a positive bias will help the price of the security to move up while a negative bias help push the security go down.

The Trading Volatility spike risk forecast indicates that the structure of VIX and VIX futures put VXX at risk for moving higher in the next 1-2 days. When this value is above 5.0 I often look for ways to protect my portfolio by reducing exposure to XIV & ZIV and increasing exposure to VXX.

You can read more about Trading Volatility's forecasts here.

You can get access to the current daily forecasts and other VIX futures data by subscribing to Trading Volatility+ for less than $3 a day.

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