What a difference a week makes, as the equity markets rallied to finish last week, turning in a strong performance. But what might the second half of October hold for exchange traded funds?

It was only earlier this month that the S&P 500 plunged as low as 1074.77 only to rebound fiercely, and it has not looked back since. The SPX closed at 1224.58 which is the highest level the index has approached since late August (and then it soon regressed).

Technicians are likely watching the 1230 level for further confirmation of this up move in the market, and we will see this week if that holds. It is worth noting that the SPX successfully crossed its 50 day moving average and subsequently rose above there and held for four consecutive trading sessions.

Although trading volumes in the marketplace were rather light compared to the averages, it is hard to ignore the recent unidirectional move in equities. Some flows that caught our attention that also seem to convey a “risk on” sentiment that felt as if it was building all week among investors involved the CBOE Volatility Index (VIX).

The VIX has dropped steeply, closing with a 29 handle on Friday after trading in the mid 40s on multiple occasions throughout the past two months. [VIX Falls Below 30]

VIX put buyers were also present in the marketplace which would generally indicate that institutional players believe that overall market volatility levels are well overpriced and that we may see at the very least a stabilization in the equity markets, if not a continued trending rally.

The iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) not surprisingly saw mostly outflows on the week, as well as a healthy dose of put buying.

Conversely, VelocityShares Daily Inverse VIX Short Term ETN (NYSEArca: XIV) has nearly doubled since its low level touched earlier this month as institutional money seems to be focused on “selling volatility” and “getting short the VIX.”

Also, indicative of a greater amount of risk appetite on the part of investors were flows we witnessed in a number of fixed income ETFs.

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