VXX: Macro Risks Abound, A 20 VIX May Be The New Normal (Rating Upgrade)

Bank of America's June Global Fund Manager Survey indicates that 47% of portfolio managers still view the trade war as the biggest tail risk, potentially triggering a global recession. However, an analyst's assessment of the VXX suggests that while trade war fears, inflation volatility, and rising oil prices are keeping volatility elevated, the VXX is expected to remain range-bound between $40 and $60 through the summer, with no immediate bullish catalyst for a breakout.

Analysis

Investor sentiment remains cautious, with Bank of America's June Global Fund Manager Survey indicating that 47% of portfolio managers view a trade war triggering a global recession as the most significant tail risk, even as anxiety has diminished somewhat from April. This environment of heightened macro uncertainty, encompassing ongoing trade war fears, inflation volatility, and rising oil prices, is a key factor contributing to elevated market volatility. In this context, the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) has been upgraded from 'sell' to 'hold', reflecting a balance of these macro risks and recent volatility trends. Technical analysis for VXX suggests a range-bound outlook through the summer, with support identified near $40 and resistance at $60. While these mixed risks are expected to maintain a bid under VIX futures and VXX, no immediate bullish catalyst is foreseen that would drive a significant breakout from this range.

Key Decisions for Investors

• Given the upgrade of VXX to 'hold' and its anticipated range-bound trading between $40 and $60, investors might consider maintaining existing positions or adopting a neutral stance, rather than initiating aggressive new directional bets on volatility.
• Closely monitor developments in trade negotiations, inflation reports, and oil price trends, as these are identified as primary drivers sustaining elevated market volatility and influencing VXX.
• For tactical traders, the specified $40 support and $60 resistance levels for VXX could offer range-trading opportunities, while longer-term investors may prefer to await a more definitive market catalyst before significantly adjusting their volatility-related exposures.