Tuesday, November 24, 2009

2x Inverse ETF Volume Update

Click on Chart to Enlarge

The chart above is an indicator I made based off of the sum of the Dow, S&P, and Nasdaq 2x inverse ETF funds. I have posted this before, but for those that haven't seen it the idea is that volume will spike at bottoms of corrections as traders buy these as short term hedges or speculative plays. The reverse logic of that is that volume may fall to low levels at market tops when collectively there is not much fear of downside.

Now one thing that is evident from the chart is that the volume of these funds has dropped in seasonal fashion around the Christmas holiday. That makes sense because total market volume does as well. In fact, a better way to look at this may be to divide the volume above by total exchange volume to filter out the general market influence.

Anyway, the volume has dropped as of yesterday to levels lower than any except the past 2 Christmas periods. Also, Thanksgiving last year showed a low reading which again would be expected on an absolute level. The Nov-Dec January time period tends to show greater than random gains throughout history with the days surrounding the Thanksgiving and Christmas holidays being some of the most consistently positive.

So that may account for some or all of the low reading currently, but volume also dropped to quite low levels in late Oct before a sharp pullback, so it is something to keep an eye on from a sentiment perspective.

I'll try to recreate this chart as a percentage of NYSE volume and post that chart sometime relatively soon as well.

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