The VIX Fear Factor is Back Thanks to Europe

VIX, the CBOE Options Volatility Index, also known as the “fear indicator,” spikes as fear takes hold of equity markets.

Worries over Spain’s debt problems and the upcoming weekend election in Greece rattled world markets as major U.S. indexes declined sharply after momentary euphoria over an international bailout of Spain’s banking system.

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VIX jumped 10.98% today to close at 23.56, above its 50 day moving average and up more than 70% from its March lows.

The Dow Jones Industrial Average (NYSEARCA:DIA) declined 142 points, 1.1%, while the S&P 500 (NYSEARCA:SPY) shed 1.3% and the Nasdaq Composite (NYSEARCA:QQQ) shed 1.6%.  The big loser for the day among major indexes was the Russell 2000 (NYSEARCA:IWM) which plunged 2.4%.

In overseas trading early Monday, Asia registered sharp gains in response to the weekend announcement of Europe’s 100 billion Eurodollar rescue of Spanish banks but Europe was mixed and by the time trading started in New York, the euphoria wore off completely a few minutes into the trading day.

Aside from Spain, the other factor chilling the short term outlook is this Sunday’s election in Greece which is widely being viewed as a referendum on Greece’s ongoing membership in the Euro and concern over what the fallout of a Greek exit might be.

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Gold (NYSEARCA:GLD) was mostly flat at $1596/oz. while oil (NYSEARCA:USO) dropped 3.9% to $81.17/bbl.

Among VIX related ETNs, the top performers were “long” volatility:

iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX): +8.4%, This ETN is designed to track  the average and implied volatility of the first two months of futures contracts of the S&P 500 Index.

VelocityShares Daily 2X VIX Short-Term ETN (NYSEARCA:TVIX): +11.7%, This ETN is designed to track 2X return on volatility in the markets as measured by the S&P 500 VIX Short-Term Futures Index.

Bottom Line: Today was a huge reversal day as markets opened substantially higher and immediately reversed to close lower. Expect intense market volatility as markets grapple with ongoing debt problems in Europe and uncertainty over the upcoming Greek elections.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

Disclaimer: The ETF Premium Newsletter is is long (NYSE:VXX) and trades a wide variety of ETFs; positions can change at any time.