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ETF Overview: Apple, Fed Push S&P 500 Over 1,400

Last week’s market drivers were twofold for the most part, Apple (AAPL - News) and the Fed. AAPL fell sharply to begin the week after gyrating over the past several weeks after hitting an all time high of $644.00 a share earlier in April.

The S&P 500 closed Friday above the closely watched 1,400 level but the blue-chip index was set to open the week lower.

In fact, the situation looked grim prior to AAPL’s anticipated earnings release mid-week last week, as the stock traded as low as the $560s range and dipped below its 50 day moving average for the first time since last December. Nevertheless, AAPL posted strong numbers and the stock immediately sprung to life to finish the week with a good showing, and having an influential weighting in several major indexes and index products currently (AAPL is a 17.52% weighting in the Nasdaq 100 PowerShares QQQ (QQQ - News) , a 4.37% weighting in the S&P 500 (SPY/IVV/VOO), and a 18.71% weighting in the S&P Technology Sector Index (XLK - News) for instance, significant stock moves in AAPL alone are enough to potentially “move the market” these days.

AAPL’s strong numbers coupled with benign comments from the Fed lifted equities out of a two week hangover to resume 2012’s uptrend, with the SPX (S&P 500 Index) closing above 1400 (1403.36) on Friday. Our market technician David Chojnacki had noted the “range bound” technical characteristics of the equity market in recent notes and pointed to a market that was struggling finding direction in an area of “limbo”, but last week we saw some evidence of strengthening technicals to finish the week. Areas that had provided technical resistance including 1380 and 1388 in the SPX were surmounted with ease post AAPL’s earnings release, and having tested its 50 day moving average on several occasions in the past few weeks and successfully bouncing each time, the SPX seems to be on solid footing once more and may be able to make a near term run at its high of 1422.38 that was touched in early April.

Reflective of the “risk on” dynamics of the late rally last week, the VIX plunged from the 20s well down to a $16 handle as institutional investors began to unwind protective put positions in some cases that were likely established prior to the AAPL release and the anticipated FOMC comments. Interestingly however, iPath S&P 500 VIX Short Term Futures ETN (VXX - News) saw impressive net inflows last week as the fund reeled in more than $250 million despite the price action in the VIX index and the VXX product itself.

Potentially, institutions are using the drop in the VIX as an opportunity to establish volatility hedges going into the late spring and early summer months. SPY led all ETPs in terms of inflows, taking in about $1.2 billion in assets, as it is a popular and easily accessible instrument for managers whom want broad benchmark exposure to utilize in a “pinch”, especially as the SPX crossed key technical levels late last week to the upside. IWM ranked #2 on the inflows list, taking in about $700 million via creation activity, and recall that last week SPY and IWM saw the most outflows in absolute terms.

Since both products are heavily utilized by institutional managers for cash equitization as well as trading types for short term purposes, it is not that surprising to see them consistently ranked in the top in terms of inflows nor outflows in any given week. IVV (iShares S&P 500), which is iShares alternative to the State Street product SPY, also saw impressive action last week, accumulating more than $150 million in new assets, as did a handful of fixed income products including HYG (iShares High Yield Corporate Bond) and LQD (iShares Investment Grade Corporate Bond), taking in nearly $300 million collectively.

Two sector specific equity products were also active on the inflows side, XLV (SPDR Health Care) and XLP (SPDR Consumer Staples) as it is likely that managers made some bullish tactical tilts to both sectors during the week, which are heavy individual names such as JNJ, PFE, and MRK in the case of XLV and PG, KO, and PM in the case of XLP. QQQ (PowerShares QQQ Trust), which saw heavy outflows last week largely do to AAPL’s flagging performance, lost an additional $500 million net in this past week, but most of this action occurred in the beginning of the week prior to AAPL’s bounce back above the $600 level. XRT (SPDR Retail) and XLB (SPDR Basic Materials) both lost assets last week, collectively seeing $400 million leave the funds in redemption activity as did GLD (SPDR Gold). There is not much to report in terms of notable inflows/outflows outside of the aforementioned equity and fixed income based ETFs, as commodity and currency based ETFs for example were relatively quiet on the whole last week despite the fact that the Euro really began to move in a positive direction to end the week.

FXE (CurrencyShares Euro) has been slowly trending higher versus the U.S. Dollar and is now above its 50 day moving average for the first time in about a month. Meanwhile, natural gas ETFs including UNG and NAGS for example vaulted higher last week on rising prices in the underlying futures and crude oil related ETFs such as USO and DBO for instance also grinded higher.

With the first week of May upon us in the coming trading week, we will see if the SPX has the staying power to maintain its posture north of 1400 and if expectations of volatility in the near term remain low among market participants.

For more information on Street One ETF research and ETF trade execution/liquidity services, contact pweisbruch@streetonefinancial.com.