The SPDR S&P 500 ETF Trust (NYSEArca: SPY), PowerShares QQQ ETF (NasdaqGS: QQQ) and the iShares Russell 2000 ETF (NYSEArca: IWM) are three of the largest and most heavily traded US-listed ETFs.
As such, IWM, QQQ and SPY also have some of the most robust options activity among US-listed ETFs, providing market participants with some potentially compelling data.
“Specifically, the combined front-month gamma-weighted Schaeffer’s put/call open interest ratio (FM-GW SOIR) on the SPDR S&P 500 ETF Trust (SPY), PowerShares QQQ Trust (QQQ), and iShares Russell 2000 ETF (IWM) surged above 6.0 last week — the most elevated reading since 2011, according to Schaeffer’s Quantitative Analyst Chris Prybal,” reports Schaeffer’s Investment Research.
SPY is the world’s largest ETF. QQQ tracks the tech-heavy Nasdaq 100 Index and IWM is the largest small-cap ETF.
Related: 3 Best Performing Long Bond ETFs of Past Month
According to FactSet data, U.S.-listed stock funds saw $8.78 billion in outflows, which more than offset the $3.44 billion that was funneled into fixed-income safety plays. Among the worst off, U.S. large-cap funds experienced $22.1 billion in outflows, followed by Europe total market funds focusing on developed economies that had $2.8 billion in outflows.
SPY, QQQ, IWM Bullish for U.S. Stocks
The aforementioned options activity could prove to be bullish for U.S. stocks.
“The combined FM-GW SOIR 10-day moving average officially topped 5.0 on March 23, marking its first trip above this threshold since Nov. 3, 2016. Below is how the S&P 500 Index (SPX) has performed after previous such highs in this metric, looking back to 2008. Notice that there were no signals in 2013, 2014, or 2017,” according to Schaeffer’s.
Smaller U.S. companies that have a higher exposure to the U.S. and less exposure abroad in terms of revenue and profit would be more insulated from international trade disputes, which has caused more investors to shift toward the small-cap segment.
Related: ETF Industry Punched With Big Monthly Outflows
According to FactSet data, Russell 2000 companies generate 79.4% of revenue from the U.S. exposure, whereas 69.7% of the S&P 500’s revenue exposure comes from the U.S.
“One week after a signal, the SPX has gone on to average a return of 2.1% — about 10 times its average anytime one-week return of 0.2%, looking at data since 2008. Two weeks out, the S&P was up 3.3% — again, roughly 10 times the norm — with a positive rate of 88%,” according to Schaeffer’s.
For more information on the ETF industry, visit our ETF performance reports category.
Tom Lydon’s clients own shares of QQQ.