Daily ETF Roundup: VXX Continues Higher, VGK Tumbles Further

by on May 5, 2010 | ETFs Mentioned:

Equity markets continued their slide in Wednesday trading as major indexes fell by more than 0.5%. Leading on the downside was the tech heavy Nasdaq, which fell close to 0.9%. This followed another poor day in Europe which saw all the major indexes down; France led the way, posting a loss of 1.4%. Additionally, commodity markets sunk as investors fled the euro for the relative safety of the dollar; oil finished the day down by close to 3.6%, below the crucial $80/bbl. mark. The main catalyst for today’s slide was arguably investors’ continued worries regarding the Greek bailout plan and the risk of a sovereign debt crisis spreading across Europe. Some fear that if the debt issue is not contained with Greece, it will spread across the continent to other weak European economies such as Spain and Portugal.

The ETFdb 60 Index plunged 7.89 points on the day, or 0.8%, to finish at 1,042.20. For the second straight day, aggregate volume exceeded 1.3 billion shares.

One of the biggest gainers in the ETFdb 60 today was the iPath S&P 500 VIX Short-Term Fund (VXX), which rose 4.3%. This came on continued uncertainty over the fiscal health of Greece and the euro, especially after a report out of Moody’s which warned that it could cut Portugal’s credit rating two notches in the next three months. “As uncertainty rocks Europe, it spreads across to the U.S. and whenever we see uncertainty, investors are more willing to pay higher prices for options protection,” said Joe Kinahan, chief derivatives strategist at TD Ameritrade (see How NOT To Use VIX ETFs). VXX has been soaring higher as troubles in Europe have reached a boiling point; the fund has posted a gain of over 22% over the past two weeks (see more information about VXX’s returns).

One of the biggest losers on the day was the Vanguard European ETF (VGK), which sank by 2.6% in Wednesday trading (see charts of VGK here). This came after massive strikes across Greece called into question the ability of the government to enforce its austerity measures. The nationwide strikes led to the deaths of at least three bank employees in Athens after Greek Prime Minister Papandreou enacted deep budget cuts, including pension reductions and cuts to the public sector. Additionally, Chancellor Angela Merkel of Germany said in a speech to the German parliament that “Europe is at a crossroads, this is about no more and no less than the future of Europe and about Germany’s future in Europe.” This comment helped to reinforce the gravity of the situation and show how much is at stake in the resolution of this crisis not only for Greece but the euro zone as a whole (also see Five ETFs For A Tumbling Euro).

Disclosure: No positions at time of writing.