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U.S. equity markets tanked to start the holiday shortened week as escalating protests in the Middle East sent investors running for safe havens. The Dow sank by 178 points while the broader indexes posted sharper losses as the S&P 500 declined by 2.1% and the Nasdaq fell by a 2.7% margin.

Commodities were also weak on the day as a host of softs and grains sank although safe havens and oil managed to break through to the upside. Gold finished just shy of $1,400/oz. while oil gained an astounding $5.8/bbl., a 6.4% gain from Friday’s close as investors anticipated a shutdown of the oil flow from an important OPEC member. Undoubtedly, markets focused in on this increasingly tense situation in North Africa for guidance during the day’s session as a defiant Gaddafi vowed to hold on to power in the nation despite continued calls for his removal by a number of world leaders and a growing mass of protesters in the country’s capital of Tripoli. Although the country has less than seven million people, it does produce roughly 2% of the world’s oil output ensuring that any political developments in the nation will be well tracked by traders around the globe. This pushed oil up sharply higher on the day and threatened to stall the market recovery and send the markets back into double dip territory, especially if oil prices remain elevated. “Investors appear to be at the crossroads of a correction or the start of a new bear market,” said Sam Stovall, chief investment strategist at Standard & Poor’s.

One of the biggest ETF winners on the day was the iPath S&P 500 VIX Short-Term Futures Fund (VXX) which surged by 12.1% thanks to increased concern over the situation in the Middle East. Thanks to this tension, investors pumped money into VXX, one of the most liquid representations of the "fear index" that investors have in the ETP world. “The major concern out there is, if oil goes to $100 a barrel, that’s going to hurt. And people are worried that there’s a domino effect,” said William Lefkowitz, options strategist for vFinance Investments. Due to this, VXX was one of the few winners in the ETFdb 60 and could continue its recent surge higher if Middle East tensions continue.

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One of the biggest losers in the ETFdb 60 was the iShares MSCI South Korea Index (EWY) which fell by 4% in today’s session thanks to two key factors. First, a general exodus from emerging and quasi developed markets was underway in Tuesday’s session which helped to push investors out of the often volatile Korean market for safer locales such as U.S. bonds. This underlying tone combined with continued worries over the Korean financial sector pushed EWY sharply lower on the day. This came after the country’s financial regulator suspended the seventh savings bank in less than a week, after depositors withdrew as much money over the weekend as they did in the entire last month, according to the WSJ. This worry hung over the Korean market and caused many investors to seek less risky pastures, especially on a day like today which was already fraught with volatility.

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Disclosure: No positions at time of writing.

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Source: Tuesday ETF Roundup: VXX Skyrockets on Libyan Protests, EWY Tumbles