ETF Trading Report: Bear Mid Cap, Short Euro ETFs In Focus

Despite easing from China and more hopes from the Federal Reserve, U.S. stocks had trouble maintaining their momentum during Thursday trading. This was somewhat surprising as China announced its first rate cut since the financial crisis while Bernanke proclaimed that the Fed was ready to act if the crisis ramps up in Europe.

As a result of the lukewarm reception from these events, the markets were mixed on the day. The Dow managed to add about 0.4% while the S&P 500 was flat, and the Nasdaq lost about half a percent. Weakness was seen across the tech space while some of the smaller oil and gas firms, along with bank banks, were also weaker. Strength was seen in staples though, as utilities, conglomerates, and consumer goods were all up on the day.

Bonds and currencies were also mixed on the session as the U.S. dollar index added a few cents while European currencies were mixed against the greenback. The ten year saw yields decline by two basis points while the 30 year saw some outflows, moving yields up to the 2.75% level.

Commodities were mixed but tilted higher outside of the energy space as cotton, soybeans, and wheat led the space higher. However, precious metals and oil/natural gas, arguably the most important of the commodities, were all down on the day led by a 2.6% slump in gold and a nearly 6% slide in natural gas (see Why Russia ETFs Are Not A Debt Crisis Safe Haven).

In the ETF world, volume was on par with historical averages in many segments of the market. However, we did see outsized volume in a number of commodity ETFs, some of the longer dated bond funds, and a few of the large cap blend ETFs as well.

In particular, the ProShares Short MidCap 400 ETF (MYY - ETF report) saw some outsized interest on the day. The fund usually sees volume of about 43,000 shares on the day but experienced a spike to over 850,000 shares during Thursday’s session (see Mid Cap ETF Investing 101).

The bulk of the trading came in the early part of the day thanks to a few massive blocks which accounted for much of the volume for the session. Clearly, some investors were looking to position themselves against the mid cap market during the rest of the day and possibly the end of the week as well.

Interestingly, the corresponding mid cap bull ETF also saw outsized volume on the day although it was nowhere near what MYY experienced. Additionally, all the ‘regular’ mid cap ETFs saw underwhelming volume on the session implying a heavy interest in the short side of the trade to close out the week.

Another ETF which saw a solid level of trading during the session was the Market Vectors Double Short Euro ETN (DRR - ETF report). The product usually sees trading volume of about 22,000 shares but saw a spike to 273,000 shares during Thursday’s session (read Three European ETFs That Have Held Their Ground).

Interestingly, the vast majority of the volume on the day came with a 170,000 share block at the beginning of the session, implying that traders looked to position themselves ahead of the entire day. However, the product didn’t really move very much during the rest of trading, possibly leaving some disappointed with the product’s performance on Thursday.

Still, volume in the unleveraged euro products and the bull leveraged funds targeting the currency were disappointing on the day suggesting that many are looking for a further drop in the euro to close out the volatile week.

(see more in the Zacks ETF Center)