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Global Macro: Volatility Finally Gets a Bid

Stocks in this article: VXX GDX

NEW YORK ( TheStreet) -- Fear indicators spiked higher on Tuesday as politicians again failed to reopen the U.S. government.

There was no major breakdown in equity markets, but fear indicators were bid higher as investors looked to hedge a potential selloff if a deal cannot be reached by Thursday.

The first chart below is of Market Vectors Gold Miners ETF (GDX).

Gold was bid higher, which led to an outperformance of this industry group, even as most investors turned away from equities.

The chart below shows a solid technical set up, as the price action coiled tightly the past few days.

The breakdown of talks in the late afternoon hours was enough to propel the index higher.

If a deal can be completed prior to Thursday, a relief rally in equities would probably ensue, leading to the selling of gold miners.

On the other hand, the price action again looks wound tightly, so further political impasse could lead to a push towards monthly highs.

The next chart is of iPath S&P 500 VIX ST Futures ETN (VXX).

After the close on Tuesday, the Fitch ratings agency put U.S. debt on negative watch.

This is similar to what happened in 2011 as Standard and Poor's gave a negative rating to the United States, citing government polarization.

A broad selloff in equities has yet to happen, but the volatility index, as pictured below, has been bid higher in preparation for investor panic.

Fitch stated in its report that a debt agreement was probable, which is similarly reflected in the volatility index.

It has been bid higher, but a default would be catastrophic, potentially pushing the index to record highs.

The index is nowhere near record highs just yet, but fear is certainly an issue.

Expect continued delay in opening the government to cause hedge assets to be the most attractive investment for the time being.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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