In what may be related activity, PowerShares DB US Dollar Index Bullish (NYSEArca: UUP) took in nearly $400 million in new assets, and despite having quite a price range in the past 2 months as the European situation continues to get sorted out, options flows have consistently been leaning “long U.S. dollar” as well as we continue to see call buyers in UUP, call buyers in ProShares UltraShort Euro (NYSEArca: EUO), and put buyers in CurrencyShares Euro Trust (NYSEArca: FXE).
We watch the euro especially closely around the $1.30 level as it has shown some support there and those trading UUP are obviously mindful of what the euro does on a day to day basis as well. In one of our daily recaps last week we spoke about a number of the HOLDRS products seeing asset outflows which was not particularly surprising given the expiration of the tender exchange offer from Van Eck to existing owners of the Merrill Lynch HOLDRs products. One “swap” seemed evident to us, where we saw about $700 million leave Oil Services HOLDRS (AMEX: OIH) and $800 million enter SPDR S&P Oil and Gas Exploration and Production (NYSEArca: XOP) via creations. This activity amounts to more than 20% of the outstanding assets in the fund, so it is certainly noteworthy institutional buying. In other unusual creation activity, in generally lightly traded PPA, we saw two giant volume days last week, where the fund traded over 5 million shares on Wednesday and well over 2 million shares last Thursday (versus average daily volume of about 200,000 shares and over $130 million in new assets entered the fund).
With the S&P 500 going into the final week of 2011 with a marginal gain of about 0.5%, and assets such as gold still being up handily (+12.67% year to date) despite the recent drubbing, we would expect to see some level of year end related “window dressing” activity as well as another round of tax related ETF “swaps” which we have discussed in recaps from previous weeks. This activity should contribute to a lift in volumes over last week’s levels, and likely will provide a better technical foundation for any short term direction the markets may take in early 2012.
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