3x Bullish Fund Volume Surges

Mar 13, 2009: 4:24 PM CST

A few readers have brought this to my attention so I wanted to share with you all the relative volume comparisons in FAS (3x Financials Bull), BGU (3x Large Cap Bull), and the – now seemingly puny – 1x DIA (you know, actual Dow Jones ETF).  Let’s see these three on the daily chart.

FAS (3x Financial Bullish):

I won’t give comments on the technical structure, but want you to focus on the volume in each of the three funds I’m displaying here.

Let’s start big – the FAS is the 3 times leveraged Financials Bullish vehicle traded 350 million shares today. Yes, you read that right.

What’s more, look at the trend of volume as more traders have caught wind and are sticking their toes into this highly leveraged product.  We saw 50 million shares average in late January which quickly stepped up to 100M later, then 200M in early March and now 350M a week later.  This is phenomenally amazing to me how quickly this product has caught on to the general trading community.

And I can see why – it’s a relatively cheap priced ETF that recently doubled in value this week.  Price moved from $2.50 to $5.00 in a week (the XLF Financial 1x ETF moved up roughly 33% on the week).  A 33% move up in the XLF translates to a 100% move up in the FAS.

What traders need to be aware – lest they get drunken with greed – is that a 10% decline in the XLF would wipe out 30% of the profits, and it gets worse as the XLF decline increases.  But that’s for another day.

Let’s move on to the BGU or 3x Large-Cap (roughly the Dow Jones) Bullish

BGU (3x Large-Cap Bullish)

Volume slightly trailed off after peaking Wednesday above 35M shares.  We traded just over 31 Million shares today – which may or may not seem like a large number to you.  The SPY (S&P 500) ETF traded just over 330 Million shares today.  That’s what you’d expect from a major market ETF.

Notice the trend in volume is clearly up on BGU as more and more funds/traders discover its utility – but hopefully they are also considering the risk, particularly as we are forming a countertrend retracement swing into EMA resistance… but I promised to keep the discussion here focused only on volume.

Finally, let’s compare both of these 3x funds to the DIA, which is the Dow Jones (proxy) ETF.

DIA (Dow Jones 1x ETF):

The DIA traded 20 Million shares today.  That is paltry when compared to the SPY (300M), QQQQ (150M), and of course FAS (shown above at 350M).

It’s possible there’s an industry trend of volume rotating away from the DIA (and Dow Jones in general) towards the S&P 500 and particularly leveraged and triple-leveraged funds.  Notice the trend of volume in the DIA is clearly down since peaking around February 10.

This is one of the reasons I’ll be shifting all my trading operations away from the DIA and towards – for now – the SPY.

Keep looking for volume clues in other index and leveraged funds.

For comparison of 3x bearish counterpart funds:

FAZ (3x Inverse/Short Financial) traded 30 million shares
BGZ (3x Inverse/Short Large Cap) traded 10 million shares

Corey Rosenbloom
Afraid to Trade.com

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12 Comments

12 Responses to “3x Bullish Fund Volume Surges”

  1. Phoevos Says:

    Corey:

    Do you agree with this chart below? i.e. that we are more likely to move closer to SPX 670 before we resume upward trend?

    http://tinyurl.com/c36zfs

  2. faknr0ll Says:

    Did someone consider if just for a moment, that volume increases as price decreases as more *machines* get into game and individuals trade bigger lots as they can afford it and as avg daily range is now smaller? If FAS avg daily move (from open to close) is 5% (just suppose), 5% of 30$ isn’t what it is of 5$..so *obviously* vol increases because now one buys 10K lots of FAS to scalp 5 cents..like the avg prop trader where commissions are negligible.

  3. Phoevos Says:

    http://tinyurl.com/c36zfs

  4. Phoevos Says:

    Unfortunately the hyperlinks are not working. Here is an alternative view:

    http://danericselliottwaves.blogspot.com/

  5. Corey Rosenbloom Says:

    Phoevos,

    I gave your links a TinyURL so they should be working.

    I’d look at it more from a Fibonacci retracement zone at 750 or so as I’d mentioned I think in a previous recent post, and that I think we’re less likely to break above 800.

    We could head higher but we’ve had 4 up-days in a row and there’s a slight negative volume divergence.

    We may swing down to form a B and then perhaps back up slightly to form a C and then back down to finish off the final 5th wave.

  6. Corey Rosenbloom Says:

    Faknroll,

    Absolutely – volume tends to be a function of share size. Look at SIRI or any number of popular stock that went to low prices.

    That’s clearly occurring, but it’s happening at the expense of the DIA and probably other major ETFs.

    I think it’s also a function of public awareness and strong risk-taking appetite and the desire to make a quick buck.

  7. J. Rochadel Says:

    Corey

    First of all I wanna congratulate you for the blog, my friends and I here in Brazil have been visiting it all the time since we found it !!!

    Here in Brazil we have seen something pretty interesting happening with the Brazilian IBOV

    As you may know, the IBOV had been very strong and to everyone´s surprise it didn´t test/lose the november low like Djia/SP500 and most European markets did, on the contrary, it went up every time the American indexes showed some sort of possible recovery..right now we´re about 30% above the november low…however, as I said before, it HAD been very strong, but in the last fews days things changed, while the SP/Djia rebounded almost 15% the IBOV kinda struggled to gain almost 5% as most investors believed this SP500 rebound wouldn´t break the 750.

    Based on what you´ve seen/read/ and on your technical analysis, do you see any possibility the SP keeps moving straight towards the 800 or you stiil believe the 750´s wont´t let go that easily ?

    I apologize for the long reply, but I really wanted to interact.

  8. Corey Rosenbloom Says:

    J,

    Great to have you from Brazil! I’ve had friends who have visited and loved it.

    I’ve been keeping an eye on the Bovespa – you’ve had a much stronger run off the October lows than we have and the chart looks much stronger.

    I suspect the best case scenario (for S&P) is an ABC move, wherein we got the first A up, we may be starting a quick/shallow B down here, and then a C back up perhaps as high as 800 but I don’t think we’ll get over 800. If we do, then we do, but it seems there’s so much confluence resistance there. Then we start the 5 down.

  9. faknr0ll Says:

    Corey, you are probably right that 3x ETF’s increase in vol is at the expense of DIA/SPY, but have you tried quantifying it? If total NYSE + NAZ vol remains constant then we can assume (with limited certainty) that if 3x had bigger vol then DIA/SPY/etc had smaller vol. However, if the total vol on the exchanges spiked well above its mean AND vol increased in 3x ETFs then I’d say we are clueless as for the money flow.

    What I was thinking though, is that people (tech analysis fans) see vol increasing as we fall deeper into the abyss and think – shorts covering, buyers coming, capitulation/reversal must be on the way. And probably most of the time the vol increase was just due to the reasons we stated..

  10. CorkyAgain Says:

    faknr0ll, so you would prefer to chart price * volume, in order to see actual net dollar inflows/outflows?

  11. Corey Rosenbloom Says:

    Fak,

    It’s probably not a one-to-one relationship, but I bet there’s something going on there for sure.

    I’ll have to do some behind the scenes work to see if I can figure out the relationship if any regarding volume in these key ETFs.

    Rising volume – in a TA sense – isn’t always for reasons we think it is. Sometimes it takes a lot of digging to get to the source, and sometimes we may never really find it until the move is over, or the news comes out.

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