Dow Witnesses Biggest Fall In Three Months; VXX Soars On Higher Volatility, ERUS Sinks

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[Chart courtesy of MarketWatch.com]

U.S. stocks suffered their biggest drop this year on Tuesday as fears of a disorderly Greek default loomed large.

The DJIA sank by more than 200 points after the US markets witnessed a sell-off following weak economic data from Europe and rising yields on EZ government bonds. As Greece struggles to meet Thursday’s deadline to convince private sector lenders agree to higher haircuts on their bond-holdings, many investors chose to rebalance their portfolios ahead of the cut-off date.

The Dow lost 1.5 percent to close at 12,759, its biggest drop since Dec. 8, when it sank 1.6 percent. The S&P 500 dropped 1.5 percent to 1343.36, its worst day since Dec. 8 and the third straight day of losses. The tech-laden NASDAQ Composite lost 1.4 percent to end at 2,910.32, also its highest percentage drop since December 8.

Treasury yields dropped the most in more than three weeks after news of Europe’s economy slowing down came in. Also the persisting deadlock over Greek’s so-called private sector initiative weighed on the markets. Yields on US ten-year bonds dropped 0.06 percent to 1.95 percent, as risk was off the table ahead of the crucial Thursday deadline to complete the PSI agreement. Yield on 30-year Treasury bonds also dropped by six basis points to touch 3.09 percent on higher demand.

As the S&P 500 recorded its steepest drop in 2012 over Greek-debt concerns, the iPath S&P 500 VIX Short Term Futures ETN (VXX), which tracks the underlying volatility index VIX, jumped 7.61 percent on the day.

Bonds were back in favor as risk remained off-bounds with the iShares Barclays 20+ Year Treasury Bond Fund (TLT) rising by 1.2 percent for the day.

Though Europe and China remained in focus, ETFs designed to tack Russian indexes got hammered today with the iShares MSCI Russia Capped Index Fund (ERUS) dropping by a steep 6.46 percent. The recent political developments in Moscow over presidential elections may weigh this counter down in the coming days.

As Swedish indexes dropped for the third consecutive day, iShares MSCI Sweden Index Fund (EWD) shed 5.63 percent on the day, retreating to its 50-day moving average.

Fear of lower Chinese growth this year continues to play on emerging market focused ETFs. Guggenheim China Small Cap Index ETF (HAO) shed 4.88 percent following yesterday’s announcement of 7.5 percent GDP expansion this year. Similarly, the Global X Uranium ETF (URA) also lost 4.77 percent on the day over Chinese growth worries.

Oil prices for April delivery dropped by $1.95 to $104.77 a barrel while Gold futures for April delivery shed $35.40 to end at $1,668.80 an ounce.

Our Trend Tracking Indexes (TTIs) slipped off their highs, but none of our trailing sell stops were triggered. In case you follow the ETF Model portfolios, the latest update will be posted tomorrow morning.

Disclosure: Holdings in TLT

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