Another equity based ETF caught our attention earlier during the week as well, and that is Rydex S&P 500 Equal Weight (NYSEArca: RSP). [ETF Chart of the Day]
RSP took in over $300 million on heavy creation activity, and the fund traded huge multiples of its average daily trading volume. We believe that a portfolio manager rolled an existing SPY position into RSP, possibly for tax reasons going into year’s end. China, which we have pointed out in the past as a major laggard compared to the U.S. domestic equity indices year to date, is finally starting to gather some momentum and the trading in iShares FTSE China 25 Index Fund (NYSEArca: FXI) reflects this. The fund saw net creations on the week as well as consistent upside call buying which tells us that managers may be chasing higher beta names in this rally and expecting the performance gap between China and the U.S. and other developed countries to narrow in coming months.
On the fixed income side, SPDR Barclays Capital 1-3 Month T-Bill (NYSEArca: BIL) and iShares Barclays Short Treasury Bond (NYSEArca: SHV) on the other hand saw mass redemptions (collectively over $1.5 billion), as investors who have been utilizing these funds to park their assets during the August through early October uneasiness likely shifted from cash and back into equities this week.
Earlier this week, after weeks of quiet activity in gold, we also noted a significant rally in the commodity (along with other precious metals including Silver, Platinum, and Palladium), and SPDR Gold Shares (NYSEArca: GLD) as well as iShares Gold Trust (NYSEArca: IAU) both broke out of bases and rallied through their 50 day moving average lines. Volumes in either product were not spectacular, but nonetheless the commodity again seems in play, and it is worth pointing out that the gold rally seemed to go hand in hand with the steep fall of the PowerShares US Dollar Bullish (NYSEArca: UUP) and the rally in CurrencyShares Euro Trust (NYSEArca: FXE) following the European debt deal. Another commodity was in play via ETFs this week as well, as we saw U.S. Oil Fund (NYSEArca: USO) experience outflows as oil took another leg higher in its recent rally from its early October (and multi-year) lows.
With trading volumes beginning to return to the markets (we commented in recent weeks that the equity rally looked technically sound but the lack of volume was disturbing), we will be monitoring “old resistance” levels as potentially “new support”, which would be in the SPX 1273-1280 range and noting that the 200 day moving average is in the 1274 range, it will be important to see how the equity market reacts on any potential weakness down to these areas in coming weeks.
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