Daily ETF Roundup: VXX Tumbles As Market Rebounds, UNG Surges On Weather

by on April 19, 2011 | ETFs Mentioned:

With yesterday’s sell-off firmly in the Street’s rear-view mirror, stocks fought off early losses and powered ahead to modest gains in Tuesday trading. The Dow rose by 65 points while the S&P 500 posted a gain of 0.6%. The Nasdaq struggled, lagging the other two indexes by gaining only 0.4% on the day. Commodities also rose as a weaker dollar helped to boost the prices of a variety of key resources. Gold once again flirted with the physiologically important mark of $1,500/oz. while oil clawed back some of its losses from earlier in the week as the key commodity gained close to fifty cents a barrel in Tuesday trading. In currency and bond markets, the euro was a big winner in the session as the common currency gained more than one cent against the greenback, helping to recoup most of Monday’s losses. Meanwhile, T-Bills did manage to rise a little as yields slumped in both the 10 and two year bond issues despite the rise in commodities across the board and yesterday’s outlook downgrade by ratings giant S&P. “There are really not a whole lot of alternatives to U.S. Treasurys” for bond investors, said Jason Brady at Thornburg Investment Management. “A lot of folks are invested in bonds for a lot of reasons and invested in dollars for a lot of reasons, and an S&P outlook change is not going to alter that in the short term.”

One of the biggest ETF losers on the day was the iPath S&P 500 VIX Short-Term Futures ETN (VXX), which declined by 4.8% in Tuesday trading. It appears as though demand for the main ETP tracking the ‘fear index’ was short lived as worries over debt crises in developed markets subsided for the time being, limiting demand for VXX. Looking past the debt issues, markets focused in on health care and consumer product giant Johnson & Johnson, which reported solid earnings on the day and helped to lift the spirits of market participants. The blue chip rose by close to 3.7% on the day and also raised its full year forecast, helping to buoy other names in the market as well. Even with this lack of demand for the fund, VXX did manage to trade volume of 22.5 million shares, or close to nine million more than average [see charts of VXX].

One of the biggest winners on the day was the United States Natural Gas Fund (UNG), which soared higher by 3.3% in the session. Today’s gains came thanks to some unexpectedly cold weather across much of the Midwest and Northeast, which should spark additional demand of the popular heating fuel. While the amount isn’t likely to be large, it does come at a time when natural gas supplies are generally rising ahead of the summer cooling period, so this unexpected weather could influence prices in the near term. Meanwhile, on the other side of the coin, temperatures look to hit 90 degrees this week across much of Texas, possibly increasing demand for natural gas as a cooling fuel. Texas accounts for nearly 20% of total natural gas demand, so an early start to their cooling season while much of the rest of the country is still using the fuel for heating purposes, could be bullish for UNG in the short-term [see fundamentals of UNG].

Disclosure: No positions at time of writing.