Buying patterns in exchange traded funds suggest some investors are moving assets to large-cap ETFs from small-cap funds.
The S&P 500 closed the week on a high note and again seems poised to challenge its 200 day moving average (currently 1272.27), which has provided resistance twice in recent weeks as a full fledged equity rally has fallen short on both occasions. [S&P 500 ETFs Testing 200-Day Average]
Not surprisingly, broad based equity large cap oriented ETFs were active with creations this week, with SPDR S&P 500 ETF (NYSEArca: SPY) taking in nearly $2 billion in new assets. Technology continues to exhibit stronger technical performance than the S&P 500, as the Nasdaq-100 PowerShares QQQ (NsdaqGM: QQQ) continues to trade above its 200 day moving average line despite testing this level on multiple occasions recently — largely on weakness in Apple (NasdaqGS: AAPL) — and the ETF saw inflows this week as well, to the tune of about $800 million.
SPDR Dow Jones Industrial Average (NYSEArca: DIA) was another large cap product that saw net inflows, with over $400 million entering the fund.
We had explained what seemed like a migration from large cap ETFs into small cap ETFs such as iShares Russell 2000 (NYSEArca: IWM) on a few instances going back to the equity market weakness in early October, and this week from a creation/redemption standpoint, we noted activity on the opposite end of this. IWM led all ETFs in outflows, and based on the large cap creation activity that we pointed out above, it is possible that those who had made small cap bets over large cap at substantially lower levels in the market (SPX was in the 1074-1100 range at the time), are at least partially cashing out of these positions and shifting back into large caps perhaps before year’s end.
With the Russell 2000 Index outpacing the S&P 500 Index handily over the past month (up 6.54% vs 5.11%), and noting the performance gap (small caps were notably lagging large caps) that we pointed out originally when we saw large inflows into Russell 2000 products such as IWM in early October, it is entirely feasible that institutional investors are starting to unwind as least a portion of this trade.
In other activity outside of equities, we saw near term December upside call buying in both SPDR Gold Shares (NYSEArca: GLD) and iShares Silver Trust (NYSEArca: SLV) options on weakness in the underlying metals.
Both metals weakened after Monday of last week before catching a bid again finally on Friday, and it seems evident that institutional flows are playing for a resumption of upside, not only in the activity in call options that we point out but also in the fact that GLD saw about $1.5 billion flow into the fund last week.
On the fixed income front, we also witnessed activity that caught our attention. With iShares Barclays 20+ Year Treasury (NYSEArca: TLT) hugging its 50 day moving average as equities rallied toward the end of last week, about $300 million left the fund while Direxion Daily 20 Year Plus Treasury Bear 3X (NYSEArca: TMV) saw monstrous activity on the buyside. [ETF Chart of the Day: Inverse Treasury Funds]
TMV is designed to deliver 3 times the daily inverse return of the NYSE 20 Year Plus Treasury Index and more than 3 million shares of the ETF traded last Thursday versus average daily trading volume of about 300,000 shares per day.
This was the largest single day trading volume in this product by a mile, since the ETF’s inception, and it seems that a large institution or institutions are aggressively positioning for a short term reversal in Long Term Treasury prices (and rising yields), which would likely correspond with a continued rally in equities.
ProShares UltraShort Barclays 20+ Year Treasury (NYSEArca: TBT) is also worth watching in the near term in this context as it also saw inflows late last week.
Finally, also in the fixed income arena, iShares iBoxx Investment Grade Corporate Bond ETF (NYSEArca: LQD) saw impressive inflows (over $500 million on the week) but fell for five straight trading sessions after trading at a multi-year high the previous Friday. It is possible that some of the outflows in Long Term U.S. Treasuries are finding a home in LQD which tracks the Investment Grade Corporate Bond market. LQD may generally appeal to those that are seeking higher yields than Treasuries and are willing to take additional risk to earn them.
SPDR Dow Jones Industrial Average
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