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Bull Market ETFs, Bear Market ETFs: A Total Absence Of Conviction

27 May 2010 at 1:54 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

Hedge funds aren’t done buying or selling. And they aren’t particularly interested in making¬†huge bets¬†in this environment… on the long or the short side.

So what are hedge funds¬†looking to do if they aren’t trying to make money? Right now, they are far more interested in keeping their powder puffs dry. And that means… they’re still in the process of raising¬†cash levels.

Although I am an institutional money manager whose company is registered with the SEC… and not a hedge fund manager… I have friends in the biz. Many have expressed survival instincts with the¬†”live to fight another day” mantra.

Block trade money flow at WSJ.com¬†confirms the absence of bull or bear conviction. For example, if¬†enormous bear market conviction existed, one might¬†expect¬†substantial sums of money flowing into¬†ProShares UltraShort S&P 500 (SDS) and ProShares UltraShort Dow 30 (DXD). Yet neither witnessed¬†much in the way of block¬†inflows during Thursday’s 5/27/10 surge higher.

One might argue that this is because SDS is hitting resistance at the 200-Day. One might also explain that short investors are running for cover to take profits. Those are valid arguments.

However,¬†it’s hard to imagine that bearish bets using ultra-short investment tools wouldn’t appeal to the “crises-not-contained” crowd. ProShares UltraShort S&P 500 (SDS) fell 7%, but investors didn’t bite. Direxion Daily 3x Bear Financial (FAZ) dropped 13%, and few wanted a slice of the pie.

SDS 200-day 6 Months 

On the flip side,¬†if uber-trading “hedgies” were truly buying the bull, wouldn’t one expect to see some money flowing into ProShares Ultra S&P 500 (SSO)? Sitting on¬†a possible trendline break-through, the upside for new YTD highs is greater than 20%… isn’t it? If you believed it… anyway.

SSO 200-Day 6 months

Need a bit more proof that big block traders are raising cash?¬†Consider the “Selling on Strength” for the SPDR S&P 500 Trust (SPY), nearly $200 million in block¬†selling.¬†That’s roughly 2.5% of SPY’s assets under management, choosing to go to cash on a day when stock prices soared.

You can listen to the¬†ETF Expert Radio¬†Show¬†‚ÄúLIVE‚ÄĚ,¬†via podcast or on your iPod.¬†You can review more ETF Expert features here.

Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above.¬†The company receives advertising compensation¬†from Invesco PowerShares Capital Management, LLC and Geary Advisors, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc.¬†web site.

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One Response to “Bull Market ETFs, Bear Market ETFs: A Total Absence Of Conviction”

  1. Gary,

    I thought I was the only one. I use the leveraged/inverse ETFs quite a lot, but have been sitting on the sidelines since the flash crash. The “easy” money was betting against foreign ETFs via an inverse fund, but that time has passed.

    The great luxury of these leveraged ETFs is that since they fall so far below trendlines during bearish moves, that you have time to get back in (late) after the market recovers and make some gains.


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