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ETF Trading Report: Short Dow, Euro ETF In Focus

Eric Dutram

In what was another rocky session for Wall Street, equities started the day in a big slump before they recouped nearly all of their losses and finished the session at breakeven. The main catalyst for the volatility was more worry over Europe and a potential Greek exit from the common currency. However, France boosted confidence, and the markets, by talking up growth, liquidity, and even Eurobonds in late Wednesday trading.

Thanks to this, the Dow finished lower by just seven points while the S&P 500 and the Nasdaq clawed back into the green, adding, respectively, 0.2% and 0.4% for the day.  Big sector winners came in the services and materials segments, while financials were also a big winner. Tech was more mixed while consumer goods and healthcare led the way on the downside (read Three European ETFs That Have Held Their Ground).

Currency trading was also volatile, although generally a positive day for the U.S. dollar. The Dollar index finished at the $82 mark thanks to more losses against the euro although the dollar added against the pound as well. This risk-off trade also helped Treasury securities as the 10 year saw yields slide by about seven basis points before they finished down three points, to the 1.74% level.

Unsurprisingly with this backdrop, commodities were a loser nearly across the board in Wednesday trading. Natural gas was the only energy commodity to finish in the green while corn was one of the few winners in the soft market. Instead, oil finished lower by about 1.5%, while cotton (-4.0%), coffee (-4.4%), and wheat (-2.5%) took the brunt of the losses in the soft commodity market.

In ETF trading, it was a pretty robust session across the board with many of the major products seeing heavy volume. Activity was back to normal—if not higher—in the commodity space while short leveraged products ate up a huge portion of the ETF volume as well.

Particularly, investors saw a great deal of interest in the ProShares UltraShort Dow 30 ETF (DXD). The product usually sees volume of about 580,000 shares but saw a spike to 3.1 million shares in Wednesday trading (See Try Value Investing With These Large Cap ETFs).

Volume was spread out across the product during the session, although there was more activity during the opening hour and in the last 30 minutes of the day. Nevertheless, the product gained about 0.2% over the course of trading and the product is now up 5.6% over the past month.

Additionally, investors should note that the fund has been seeing much higher levels of volume over the past week or so, suggesting that this -2x daily resetting product is seeing more interest with the weakened economic outlook.

Another ETF that saw an outsized day of volume was the CurrencyShares Euro Trust (FXE). This product usually sees about 1.2 million shares in volume on a normal day but saw a spike to 3.4 million during Wednesday trading (Read Emerging Market Currency ETFs: A Great Start to 2012).

Undoubtedly one of the biggest reasons for this jump was the uncertainty in the European situation and the ongoing Greek issue. In the morning, this was a big problem and it led to much of the volume while the product was tumbling.

However, investors also saw a nice boost in volume during the final hour of the session, as it appeared as though the euro story was turning around. During that time, several blocks over 50,000 shares moved hands, suggesting that some investors were using this product to position themselves ahead of Thursday’s trading.

(see more in the Zacks ETF Center)

Read the analyst report on FXE

Read the analyst report on DXD

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