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A shift occurred in the market with 1st and 2nd month VIX futures closing in a very slight backwardation of 0.05 points, with April at 16.65 and May at 16.60 (see data page). While this does not necessarily mean a continued selloff in VelocityShares Daily Inverse VIX Short Term ETN (NASDAQ:XIV), I think it is very important for anyone who has grown accustomed to the seemingly unidirectional movement in XIV to understand that gains are not always a given.

We've seen a good run -- the result of a VIX that has declined from 26.66 on 6/1/12 down to six-year lows of 11.03 in March, as well as rolling futures in a contango term structure. The result has been a staggering 200% gain over the past 9 months, and a 400% gain since 11/21/2011. It seems that money has been raining from the skies.

But remember that key drivers of VIX futures ETFs are 1) change in price of the relevant VIX futures contracts and 2) the term structure. Today we saw a shift in the flattening of the term structure which should signal a very loud "caution" to you.

When it comes to trading VIX futures ETPs, it is critical to watch for these changes in market structure. Consider the following graph of XIV from 2004 through 2013 (prices prior to the fund launch have been by calculating the index value using 1st and 2nd month VIX futures data).

(click to enlarge)

Those are some seriously painful losses. The thing that all of those declines have in common is a term structure shifting into backwardation. This is why it is so important to watch the term structure -- something that I watch daily by looking at the VIX Futures Data page (see 'M1-M2' for XIV and 'M4-M7' for ZIV) or the Daily Forecast (see the 'VXX Bias' gauge).

Exiting long XIV positions when the term structure flattens before a move to backwardation can help you avoid these losses.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in XIV over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.