Exchange traded funds indexed to the S&P 500 briefly rose above their 200-day simple moving average, a key technical indicator, in late October before stumbling into November.
The U.S. stock index nearly hit 1,300 before pausing. Profit taking as well as opportunistic short selling came into the picture on trading volumes that were average to above average on the whole last week, knocking the S&P 500 back down below the 200-day moving average (1,273.20), ultimately closing on Friday at 1,253.23. The index climbed into positive territory Monday afternoon following an early slide.
We do note that after several months of trading below its 50 day moving average, the S&P 500 has now spent 19 consecutive trading sessions above this level, which is a classic example of “old resistance” becoming “new support.”
From a fund flows standpoint, emerging markets were the story last week, with well over $2 billion entering iShares MSCI Emerging Markets (NYSEArca: EEM) and Vanguard Emerging Markets (NYSEArca: VWO). Typically over the past year or so, we have observed steady outflows in EEM with the proceeds going into VWO in “swap” activity, but this week was an exception in that both funds took in an impressive amount of new monies.
Dividend based ETFs were also active on the creation front, as both iShares Dow Jones Select Dividend (NYSEArca: DVY) and SPDR S&P Dividend (NYSEArca: SDY) logged notable creation activity, collectively taking in about $500 million in new assets.
On the flipside, two S&P 500 based funds, SPDR S&P 500 (NYSEArca: SPY) and iShares S&P 500 (NYSEArca: SPY), saw outflows during the week, to the tune of about $3 billion.
There is continued evidence that institutional players are accumulating small cap ETFs going into year’s end, perhaps betting that this performance gap will narrow.
Both Direxion Daily Small Cap Bull 3x Shares (NYSEArca: TNA) and ProShares Ultra Russell 2000 (NYSEArca: UWM) saw healthy creation activity, and these leveraged ETFs which reset daily reflect sentiment that we may have a short term trading rally in the small-cap Russell 2000.
On the mild pullback last week from recent highs, investors also seemed to use this opportunity to gain exposure to the fixed income ETF space as iShares iBoxx Investment Grade Corporate Bond (NYSEArca: LQD), iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) and Vanguard Total Bond Market (NYSEArca: BND). HYG took in assets on healthy volumes. LQD notably finished the week trading at a multi-year high.
Finally, after an early week surge following the MF Global announcement as well as the ongoing unsteadiness in Greece, the VIX surged suddenly from the mid 20s to trade as high as 37.53 before settling in at 30.16 to close the week. VIX options and VIX related ETFs and ETNs traded with little event this past week, but flows from recent weeks in the options marketplace suggest that institutional players are positioning for a decrease in the VIX (and thus more overall stability in the equities markets heading into year’s end), so we will monitor short term flows there to see if this sentiment is reinforced or changes suddenly.
SPDR S&P 500
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