ETF Trends
ETF Trends

While summer only officially begins this coming Thursday on June 21st, the outlook for the season has improved greatly in recent days following this weekend’s news coming out of Europe supporting a Greek bailout.

This news, coupled with a thrilling final round in the U.S. Open and the NBA Finals all on a glorious Father’s Day holiday, has given market participants some hope going into this week that we may not repeat last year’s dismal summer in the markets.

Our market technician David Chojnacki has pointed out over the past several weeks the technical resistance and congestion in the SPX (S&P 500 Index) 1319-1325 area, but beginning last Thursday and following through on Friday, equities surmounted these levels and closed at a resounding 1342.84 on Friday, up more than 1% on the session. Volumes were particularly impressive, especially on last Thursday, as it feels that institutional participation did re-engage itself at least towards the end of last week, something that has largely been lacking since well before the Memorial Day holiday in the markets. ETF/Index options last week lacked major “directional” trading activity, although we have seen consistent players of the “volatility” of the VIX, largely purchasing both puts and calls in the index, speculating on larger moves in the VIX itself (but uncertain of direction), going into the next several months.

We note that the VIX itself had an intra-week range last week of $19.63 all the way up to $24.93 and literally bounced off of both its 50 day and 200 day moving averages on several occasions in a channel. With equity futures looking higher in the overnight session going into Monday’s market open, we would expect the VIX to revisit recent lows tomorrow and likely fall beneath its 50 day moving average once more. Elsewhere, even though equities broke out to recent highs last Friday, we simultaneously saw bids in longer dated U.S. Treasury Bonds, with TLT (iShares Barclays 20+ Year Treasury Bond) for instance rallying to its highest close in seven sessions. To us, this reflects institutional caution in the marketplace going into this past weekend’s Greek bailout votes, and those still hesitant to embrace equities still seem comforted by the thought of parking their funds in long term U.S. Treasuries despite the recent price hit that the Bonds have taken.

Fund flows last week on the creation side were enormous compared similar data we have observed over the past several months. For instance, SPY (SPDR S&P 500) took in more than $8 billion alone last week, followed by QQQ (PowerShares QQQ) reeling in more than $1.1 billion. Evidently, monies moved into Large Cap equity products, and perhaps relative strength leaders of the past are being embraced again.

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