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mortiz

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I haven't had time to post much for quite awhile, but over that past few months there has been some interesting movements in total assets of some of the Proshares leveraged short ETFs in particular.

The Proshares SPXU ETF, a 3x short SPX ETF that began trading in June 2009, has exhibited unusual parabolic asset growth of late. Since early August, his highly leveraged ETF has attracted attention with the hot money traders resulting in doubling its assets, at nearly $2.8B as of Wednesday, November 23, 2011. Note the SPXU assets have increased by 44% over the past eight trading days in anticipation of further SPX price damage. 




SPXU daily trading volume has also spiked with a +2x increase in trading volume over the past three months, after spending its first two years of existence rarely exceeding 10 to 12 million shares per day. It may be a coincidence in the SPXU asset and volume increases, but the growth began right after QE2 came to an end.  The hot money traders are betting the market cannot hold up without Fed stimulus.



Proshares has a 2x short ETF linked with the SPX, symbol SDS.  We began collecting the Proshares asset data in November 2008 missing the October 2008 collapse, but note the decline in SDS assets since early 2009.  Although this ETF still has nearly $8B in assets, it is far below is $14.2B asset level in July 2009. 

We track the assets of many ETFs, and SDS is still one of the larger equity based ETFs with respect to assets with only the likes of SPY, QQQ, and DIA having significantly higher capitalization.



Proshares has another SPX based short ETF, SH which is not leveraged, merely a 1x short ETF which is likely more of a hedging tool.  The SH assets spiked dramatically to over $6.5B in early October,2011, coinciding with the October 3rd SPX price low.  The SH assets dropped nearly 25% between its peak and trough on November 8th.  Note the hedgers are not pouring money into this ETF since the current decline began, suggesting more price damage may be coming.



There are two leveraged long Proshares ETFs linked to SPX, SSO (2x) and UPRO (3x).  SSO assets are off about 22% since its late October peak, but there seems to be no panic in exiting this 2x long side ETF.



The Proshares SPX 3x ETF, UPRO, currently has just under $1B in assets, and its assets are down about 21% from its recent assets peak.  Despite the worst Thanksgiving week for the equity markets since the early 1930s, UPRO assets are only down $42M (as of Wednesday, November 21) despite UPRO price being down by almost 13%.  To shake out these hot money long side traders, it will apparently require further price decay.



Changing the topic from Proshares SPX coupled ETFs, one disturbing trend in short selling activity, is the NYSE member short sales volume as a percentage of total member sell volume.  The next chart is longer term look at this indicator.  Note when the uptick rule was abolished in the summer of 2007, just in time for the SPX price highs, the NYSE member shorting activity has dramatically increased.

NYSE member short sale volume as a percentage of total member sell volume behaves like many short sale indicators, the percentage peaks in tandem with price lows, and bottoms in concert with price lows.  What is worrisome is the longer term upward trend of member shorting since January 2010. 

This increase in member shorting may be coupled with other derivative positions, but if members are consistently wrong, they will eventually go out of business, thus the rising trend motivates close monitoring.



Another trend of heightened bearish bets, is the market maker OEX PC ratios. The raw data illustrated in the following chart is derived from daily data published by the OCC which breaks down put and call volume into three categories: retail, brokerage firms, and market makers.  The OCC daily put and call volume does not identify buy-to-open, sell-to-open, or the closing of those positions, and is simply the total volume with no indication of motivation.

Note the higher level trend of market market maker put-call ratios since early 2011.  Not shown, is the retail OEX put-call ratios which are also elevated, and since the market makers have to balance trades when needed, perhaps the market maker trend of higher put-call ratios is related to playing the other side of the retail trades.  However, the rising trend of put volume relative to call volume is yet another sign of elevated bear bet activities by the smart money crowd.



The market maker put-call ratio trends for all exchange equity and ETF volume has not exhibited the elevated bearish action as the OEX series. Since the initial August 10, 2011 momentum price low, the market maker equity and ETF volume put-call ratio is following the typical price bottoming pattern of lower put-call ratio highs and lows as a price bottom forms.



The message of the action in bear-bull money flows in recent months suggest further price deterioration may be needed before another sustained bull leg can be resumed. 

FWIW

Randy

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