9 replies to this topic

[Pulp_Cutter]

[qqqbear]

And bond shorts?
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Chart of the Day: Short ETFs for Treasuries
February 14th at 11:29am by Paul Weisbruch, Street One Financial

Recently in the options markets, we have seen renewed interest in call buying in ProShares UltraShort 20+ Year Treasury Bond (NYSEArca: TBT), which is essentially a bearish bet against prices of longer dated Treasury bonds (and simultaneously a play on rising yields).

Similarly, assets have flowed out of iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) via redemption activity, with several hundred million dollars leaving the ETF just last week alone. Additionally, we note a spike in short interest in TLT during the month of January, rising by more than 30% over the previous month. [What Rising Treasury Yields Mean for Bond Investors]

In fact, current short interest in the fund equals approximately half of all shares outstanding in TLT.

Put buying has picked up in TLT in recent weeks as well, as has activity in another leveraged/inverse fund that is similar to TBT, Direxion Daily 20 Year Plus Treasury Bear 3X (NYSEArca: TMV), seeing relatively strong inflows. [Stock, Treasury ETFs Send Mixed Messages]

So, in the face of the recent equity market rally in the early going in 2012, the “Bond Bears” whom were so prevalent in 2011 (not to mention consistently incorrect) are resurfacing once more and enacting trading strategies via the ETFs mentioned above.

We point out that TLT has traded below its 50 day moving average for the past seven sessions, but if one looks back at a historical price chart in the fund, over the past year, any weakness in bond prices has been simply temporary, and just a part of an overall bullish trend and gradual surge upward. [Treasury ETFs on the Precipice]

http://www.etftrends...for-treasuries/

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One of my favorite coal mine canaries
http://stockcharts.c...id=p39354400455

[qqqbear]

(Schaeffers ~two weeks ago)

Late last week, we noticed a shift in option activity on the aforementioned ETFs that suggests some, but not all, fund managers are seeing shorting opportunities again at current levels. For example, the combined 20-day buy-to-open put/call volume ratio on the SPY, QQQ and IWM turned lower for the first time since mid-December, when the SPX had pulled back to the round-number 1,200 area and its 80-day moving average. Additionally, the 20-day buy-to-open call/put volume ratio on VIX futures has begun to decline (second chart below).

The recent change in the direction of these ratios has been driven by a sharper increase in call buying on the equity exchange-traded funds and put buying on VIX futures, suggesting that some hedged players are going short once again. The theory is that hedge fund managers will purchase SPY/IWM/QQQ calls, or VIX puts, to hedge short equity positions. That said, even as we see evidence in the options market of an uptick in shorting activity, it is being balanced by other fund managers becoming increasingly bullish -- as overall put buying on equity ETFs and call buying on VIX futures continues to increase at the same time, if not as dramatically.

The apparent increase in shorting activity among institutional players could result in a pause or consolidation, as equities were previously enjoying a bid from both short-covering and institutional buying. While evidence of institutional buying remains, a renewed interest in short selling could result in a coincident headwind that might lead to choppiness in the immediate days ahead.

The good news for bulls is that the current wave of shorting activity represents future buying power, and the market's technical backdrop is much stronger now relative to those instances when the aforementioned ratios rolled over in 2011. The stronger technical backdrop stacks the deck against the shorts.

When referring to a "stronger technical backdrop," we point to:

1.The QQQ's breakout above the 60 level, which is half its all-time high and was a significant resistance level in 2011.

2.The S&P 400 MidCap Index's (MID - 971.25) advance back above its 2007 highs in the 925 area.

3.The Russell 2000 Index's (RUT - 831.11) rally above its pre-"flash crash" high of 750, which completes a bullish inverse head-and-shoulders pattern that targets an eventual move to the 870-900 area.

4.The SPX's breakout a few weeks ago above 1,260 -- site of the 2011-2012 breakeven point, and its long-term 320-day moving average.


Since the SPX's breakout above 1,260 in late December, it has been a straight march higher, with only one minor hiccup along the way: a pullback from the intraday highs of 1,330 to 1,300 from Jan. 26 to Jan. 30. The index comes into this week's trading at another potential resistance level, in the 1,340-1,350 area. As you can see on the chart below, the SPX was turned back from these levels on multiple occasions in 2011, suggesting this could be the next speed bump with which the index must contend

http://www.schaeffer....aspx?id=109868

[zephyrprime]

Very interesting.  However, the last time a setup like this happened seemed to be at the end of 2010 and a big rally ensued.

[qqqbear]

NYSE short interest down 5.9 pct in late January
NEW YORK | Fri Feb 10, 2012 9:22am EST

NEW YORK Feb 10 (Reuters) - Short interest on the New York Stock Exchange fell 5.9 percent in late January, the exchange said late on Thursday, suggesting a decrease in bearish sentiment in the stock market.

As of Jan. 31, short interest fell to 12.5 billion shares, compared to 13.3 billion shares as of Jan 13.

http://www.reuters.c...E8DA2PS20120210

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(Lowest since March 2009?)

[unregistered*]

Hard to tell from the net positions what it might mean - maybe they just stopped selling longs, rather than buying ever more shorts?

Perhaps some board genius could riddle me this - my observation with the USD markets generally is that  at present it's risk full on, and that all the equity and bond shorts must have been well cleaned out. My usual measure of systemic risk is the IRX which collapses to zero as markets become most risk averse. Now what I cannot comprehend is suddenly, since the turn of the year with all the Euro issues and bank downgrades etc there's a sudden flight to risk? Seems inexplicable rationally.

Attached Thumbnails

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[qqqbear]

unregistered*, on 14 February 2012 - 06:44 PM, said:

Hard to tell from the net positions what it might mean - maybe they just stopped selling longs, rather than buying ever more shorts?

Perhaps some board genius could riddle me this - my observation with the USD markets generally is that  at present it's risk full on, and that all the equity and bond shorts must have been well cleaned out. My usual measure of systemic risk is the IRX which collapses to zero as markets become most risk averse. Now what I cannot comprehend is suddenly, since the turn of the year with all the Euro issues and bank downgrades etc there's a sudden flight to risk? Seems inexplicable rationally.

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Perhaps such short duration swing are exagerated?

http://finance.yahoo...&z=l&q=l&c=^TNX

[qqqbear]

qqqbear, on 14 February 2012 - 09:26 PM, said:

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Perhaps such short duration swing are exagerated?

http://finance.yahoo...&z=l&q=l&c=^TNX

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And part of the "twist"

http://finance.yahoo...&z=l&q=l&c=^TNX

[Lee Adler]

Pulp_Cutter, on 14 February 2012 - 08:27 AM, said:

Calling Commercials "smart money traders" as the creator of this chart did is misleading in two respects. First, Commercials are not traders in the sense of trading for speculative profit. Commercials are using the futures to hedge in the course of their primary business. These "commercials" are big investment companies and especially major broker dealers.  If they are record short the futures it stands to reason that they are record long the underlying. The other thing that's misleading is the implication that they are smart money, and are therefore right more often than dumb money. One careful look at the chart will tell you that that's not the case.

[Pulp_Cutter]

Lee Adler, on 14 February 2012 - 11:34 PM, said:

Calling Commercials "smart money traders" as the creator of this chart did is misleading in two respects. First, Commercials are not traders in the sense of trading for speculative profit. Commercials are using the futures to hedge in the course of their primary business. These "commercials" are big investment companies and especially major broker dealers.  If they are record short the futures it stands to reason that they are record long the underlying. The other thing that's misleading is the implication that they are smart money, and are therefore right more often than dumb money. One careful look at the chart will tell you that that's not the case.

Good debunking & explanation - thanks!