Weekly ETF Flows and Technical Recap

October 8th at 7:45am by Paul Weisbruch, Street One Financial

Friday’s market action was encouraging early (the S&P 500 rose as high as 1470.96) which was the highest intraday level touched since early September’s intraday gap up (only to reverse lower) to 1474.51. However, in the final hours of trading on Friday, we ended up finishing net down on the SPX (1460.93) heading into the weekend.

For the Nasdaq-100, where relative strength has been waning largely with top component AAPL’s weakness of late, 2825, and 2837, and 2850 are important levels of resistance.

Near Term Support: SPX (1449-50) and 1440. For NDX, 2823 and 2812. On Friday, after trading as high as 2845.97, NDX closed JUST below near term support at 2811.94. Monday’s open, and action should be important     and monitored closely due to the late day Friday reversal.

Near Term Resistance: SPX (1462), recent closing high of 1465. More significant resistance up at 1474-1475, based on levels/data provided by David Chojnacki, Street One Financial Market Technician.

ETF Fund Flows Summary/Trends and ETF Options Color

Top Asset INFLOWS (Creations) Notables:

#1 IVV (iShares S&P 500): $1.4 billion, #2 GLD (SPDR Gold): >$700 million, #3 SSO (ProShares Ultra S&P 500): > $400 million. #4 EWH (iShares Hong Kong): >$400 million, #5 QLTA (iShares Aaa-A Rated Corporate Bond) >$270 million.  All data from IndexUniverse.com. QLTA is a classic example of a “fund that 97% of the world has never heard of”, only debuting in February of this year, but one trade occurs that dramatically increases the shares outstanding/AUM in the fund and now it will be (deservedly so) on people’s radars. Note: IVV/SSO trades were beginning of the month “calendar trades” enacted by a large (and growing) ETF tactical manager whom is apparently bullish on the SPX in the near term.

Top Asset OUTFLOWS (Redemptions) Notables:

#1 SPY (SPDR S&P 500): -$1.2 billion (Hmm, IVV has large inflows, SPY large outflows? Early “tax swaps”occurring on an institutional level perhaps?). #2 IJH (iShares S&P 400 Mid Cap): >-$900 million #3 IWM (iShares Russell 2000): -$700 million, #4 MVV (ProShares Ultra MidCap 400), #5 XLE (SPDR Energy Select): -$470 million, and #6 QQQ (PowerShares QQQ) ->450 million. The only reason we mention QQQ here is because top component, Apple (AAPL) had a rough week (dragging the entire index down really). AAPL was down 2.18% for the week, and now lies $52 LOWER than where it was AFTER the iPhone 5 was released and the stock briefly traded at a new all time high north of $705. BUT, smart phone OS competitor and web giant GOOG actually traded at a new all time high on Friday (briefly eclipsed $774).

The facts are, AAPL still carries a mammoth 19.74% weighting in the NDX (QQQ), while GOOG is only the 3rd highest weighting at 5.65%. For those in the camp of “I’m concerned with AAPL’s over-weight in Tech ETFs but I still want Tech exposure”, may consider potential alternatives includingIGM (iShares Tech S&P/GSTI), MTK (SPDR MS Tech), PTF (PowerShares Dynamic Tech), QTEC (First Trust NDX Tech), FXL (First Trust Tech AlphaDEX), QQEW (First Trust Nasdaq 100 Equal Weighted), QQQE (Direxion Nasdaq 100 Equal Weighted).

ETF/Index Options Color:

HUGE options trade in XLP (SPDR Consumer Staples) early in the week, >250,000 January 38 calls were bought. Top holdings include names such as PG, PM, KO, WMT, PEP, etc. XLP closed at a new all time high yesterday, and if it continues higher through the $38 level, the call holder controls about 25 million shares of stock in XLP, so this situation is worth monitoring for at least the next few months. VXX (iPath S&P 500 VIX Short Term Futures ETN) calls continue to be accumulated, (note that VXX “reverse split” its shares last week), and is flirting with new all time lows despite the call buying. VIX (CBOE Volatility Index) itself briefly traded with a $13 handle on Friday before closing significantly higher on fallback in equities.

ETF Industry Notables

Last Thursday, ETFs collectively accounted for a new asset record ($1.315 trillion), passing the previous mark of 1.3111 trillion (9/19/12) according to IndexUniverse.com.

The Financials (sector) is challenging 52 week highs (although it reversed sharply with everything late on Friday). Financial Select Sector SPDR (XLF) is the largest ETF for this sector.

The “story of the week” was Vanguard’s departure from established, and well-benchmarked MSCI indexes in 22 of their existing ETFs, including prominent VWO and VEA, among others. Who is Vanguard going to? FTSE (a European based provider, whom is somewhat well-known in the industry) and virtually unknown index provider CRSP (I personally never heard of them until last week, and if I don’t know ETFs by now, I’d better find another day job.) The way we see this, is that if we, trafficking in ETFs every day, haven’t heard of the index provider, than bets are the average investor and/or retail advisor has certainly not heard of them yet.

The repercussions from a tracking (positive/negative tracking error standpoint), “benchmark of choice” standpoint (especially with institutional investors whom are benched to, and heavily concentrated in MSCI index/ETF products), and ultimately asset flows (will Vanguard gain or lose asset flows in this “price war”) are still unknown. This will be something worth watching closely throughout the 4Q, especially as we enter tax gain/loss selling season (with markets up nicely this year for once), and with RIAs/Institutional managers perhaps considering “tax swaps” from”like” ETFs/ETNs and considering things such as expense ratio, tracking error, designated benchmark, net of expense ratio returns, etc.

MSCI stock for the week was largely hammered on this news (although it crept back a bit from its weekly lows later in the week), down 24.94% for the week, while BLK, the parent company for iShares GAINED 5.09% on the week. Vanguard, being a private company, has no stock that trades in the public markets for us to “monitor.”

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

ETF flow data from IndexUniverse.com.