VXX is an ETN designed to give equity traders easy access to trading volatility. Underlying the VXX is the first and second month VIX futures as represented in the SPVSTR index(1).
The VXX has lost nearly 75% this year and recently split 1 for 4 to get the price back up. Currently VIX futures are in sharp contango making it much more expensive to use the futures contracts to hedge volatility. This is a negative for the VXX as it must roll the underlying holdings every month before expiration. Contango has given rise to an ETF strategy of shorting the VXX (futures months 1 and 2) and buying the VXZ (futures months 4 - 7).
There are indicators of a bounce, however. First, VXX has seen nearly $500 million in inflows over the last two days(2). The easiest way to track the money flows is by looking at the number of shares outstanding; VXX shares outstanding has increased by more than 12 million in the last few days. While the VXX is recently off a 52 week low shares outstanding is putting in 52 week highs indicating that market makers are covering short positions. Meanwhile, VXZ shares outstanding put in a 52 week high on Monday and nearly 5 million shares were redeemed on Tuesday indicating that long positions are selling. It looks a lot like the short VXX / long VXZ trade is unwinding.
An increase in shares outstanding for VXX is very bullish and coupled with the anecdotal evidence of the VXX/VXZ trade unwinding could be good for a short term bounce. Is it enough to fight the January effect? Only time will tell.