Aggressive Call Buying in Financial ETFs; Bond Fund Outflows

October 10th, 2011 at 8:12am by Paul Weisbruch, Street One Financial

With broad based equity exchange traded funds such as SPDR S&P 500 (NYSEArca: SPY) and iShares Russell 2000 (NYSEArca: IWM) finishing well off the intraday lows touched on Tuesday of last week, we did see some signs of a rotation away from Treasury ETFs and back into equities.

For instance, Direxion Daily 30 Year Treasury Bear 3X (NYSEArca: TMV) and ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT) saw inflows on increased volume especially in the latter half of the week while iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) sold off rather sharply after reaching new highs on Tuesday. [Treasury ETFs Fall as Investors Regain Risk Appetite]

We also witnessed call buying in TBT which is equivalent to getting long the bearish ETF itself (and getting short long term Treasuries) and betting against a continued price increase (yield decrease) in longer dated Treasury bonds.

Interestingly, SPDR Barclays Capital 1-3 Month T-Bill (NYSEArca: BIL) saw inflows last week, to the tune of well over $8 billion. [BIL Buying]

BIL is generally used as a short term “cash” tool by institutional managers whom may be simply waiting out the volatility and looking for a re-entry point in the equity markets. That said, the assets in BIL are rarely “sticky,” and can mobilize at a moment’s notice.

IWM, the small-cap ETF, continued to see inflows despite the week’s volatility, and we noted last week a clear shift from larger cap equities and into smaller caps via IWM at least in terms of inflows/outflows that we witnessed.

Continued evidence in this is seen in the large outflows on the week that occurred in the S&P 500-tracking SPY (well over $1 billion) and PowerShares QQQ (NasdaqGM: QQQ) with approximately $600 million.

CurrencyShares Japanese Yen Trust (NYSEArca: FXY) had a very heavy volume week on very little volatility, as the fund continues to trend above its 50 day moving average line, and apparently a large institution or institutions are making a long bet in the currency via the ETF as about $500 million flowed into the fund.

With the exception of Friday’s late day weakness, financials were well bid from the intraday “floor” touched on Tuesday throughout the rest of the week, and we saw aggressive call buying in Financial Select Sector SPDR (NYSEArca: XLF) and heavy buying in the ETF itself as well as Direxion Daily Financial Bull 3X Shares (NYSEArca: FAS). [ETF Chart of the Day: Financials]

With the financials sector significantly lagging the broader market year to date, it has become simply a “higher beta” sector in the context of other S&P 500 sectors, and it felt that this week investors were “afraid to miss a big reversal” in a sector that has been especially hard hit during recent market turmoil. Shares of large-cap banks Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS) and JP Morgan (NYSE: JPM) were under pressure on Friday. [Financial ETFs Slide Into Weekend]

Finally, oil related ETFs such as U.S. Oil Fund (NYSEArca: USO), U.S. 12 Month Oil Fund (NYSEArca: USL) and PowerShares DB Oil Fund (NYSEArca: DBO) finished the week on a high note, registering four straight up days, but are still trading below key 50 and 200 day moving averages as it appears institutional investors are starting to “nibble” at oil the commodity at current levels, but a prolonged uptrend is still very unconvincing. [ETF Chart of the Day: Oil]

Direxion Daily Financial Bull 3X Shares

Chart source:

For more information on Street One ETF research and ETF trade execution/liquidity services, contact