The first trading day of March was a pretty remarkable day in the ETF world.
That’s because as major indexes climbed anywhere from 3-5.5% after a week of heavy selling, several highly traded leveraged ETFs broke new records in either capital inflows or outflows. Two of those ETFs are of particular note for hitting new all-time cash flow records.
Though it’s impossible to determine whether inflows and outflows are the result of longs buying or shorts selling (or vice versa) they can be a useful tool in determining if a sudden change in sentiment is underway. What follows is a look at the circumstances that lead to the high dollar volume in each ETF as well as what the buying or selling might signal for the market now as traders grapple with the uncertainty that the coronavirus has brought upon global markets.
With an average daily volume of about 15.3 million shares, the Direxion Daily Gold Miners Index Bear 3X Shares (NYSE: DUST) experienced record outflow on March 2, as stocks bounced off their lows and gold languished in a brief rut. All told, DUST saw a net outflow of -$114.1 million that day, roughly -$3.7 million more redemptions than the prior outflow record set in 2016 according to fund flow data from ETF.com.
The March redemptions followed a 2% decline in the price of gold after the commodity had rallied for the better part of the past year. However, the underlying NYSE Arca Gold Miners Index (GDMNTR) had recently risen more than 4%, likely a painful shock for the many short sellers that historically trade DUST.
What’s more, in the trading days immediately before and after the record outflow, the ETF posted two of its highest volume days on record. Nearly 51.6 million shares were traded during the Feb 28 session while roughly 51.1 million shares changed hands on the following Tuesday.
Since then, gold has rebounded close to its previous high and DUST has retreated back around year lows. Nevertheless, trading volume in the bearish gold fund has remained robust, topping its average trading volume every day since February 18.
Oddly, the same cannot be said for DUST’s bullish counterpart, the Direxion Daily Gold Miners Index Bull 3X Shares (NYSE: NUGT), which has seen elevated trading volume in that same span but not quite to the same degree as DUST. The comparatively low interest could be a sign that traders feel gold has hit a ceiling at its current 7-year high
One of the most heavily traded broad-based leveraged ETFs, the Direxion Daily S&P 500 Bull 3X Shares (NYSE: SPXL), saw its highest daily inflow ever. And the truly remarkable thing is the previous high wasn’t even close.
On Tuesday, March 3, SPXL saw $215.66 million in net inflows, again according to fund flow data from ETF.com. The next highest net inflow, way back in early-February 2018, saw the ETF garner $157.95 million.
And while not quite as heavily traded as the gold ETFs above, SPXL has seen its highest volume days in more than four years, most of it selling volume. This peaked on the final day of February with more than 20 million shares traded, more than four times its average volume.
Of course, SPXL’s bearish twin, the Direxion Daily S&P 500 Bear 3X Shares (NYSE: SPXS) also received a fair amount of traction in this period. While SPXS’s fund flow didn’t register any records in terms of net deposits or redemptions, it did post two consecutive 53+ million share volume days on the final days of February, again, more than four times its average.
Uncertainty Going Forward
It’s difficult to draw definitive conclusions from this activity since the circumstances surrounding it are so extraordinary. However, the fact that traders are positioning themselves so heavily toward “normalization” or a return to the status quo—that stocks will continue to outperform and gold will retreat as fear leaves the market—does reveal that there is still faith in the decade-long bull market.
Whether or not that is the case is yet to be seen. At the very least, there are a lot of traders willing to trade that way.
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