The SPY, 2 ETFs Book Largest Flow Since March: What Smart Money Sees For 'The Three Amigos'

Zinger Key Points
  • October was very bullish as ETFs overall took in $84b, the best month since March bringing YTD to $477 billion, Eric Balchunas notes.
  • While tracking options flow is one useful tool, the reason for a large amount of flow is rarely clear.

The SPDR S&P 500 ETF Trust SPY closed the month of October up 8.13% off the Sept. 30 closing price but had, so far, entered into a bearish November.

The Vanguard S&P 500 ETF VOO and iShares Core S&P 500 ETF IVV moved in unison with SPY, rising 8.18% and 8.12%, respectively, in October but over the first four days of November retraced about 2.5%.

Bloomberg Senior ETF Analyst Eric Balchunas noted on Twitter the three ETFs were “on top of the flow leaderboard” last month.

Balchunas believed it was a positive sign when the SPY, VOO and IVV, which he dubbed “The Three Amigos,” had the highest level of flow because “they cover every imaginable investor type.”

“While Nov could be leaner, Oct was very bullish as ETFs overall took in $84b, best month since March bringing YTD to $477b,” the analyst stated.

What Is Flow: Generally speaking, flow is a tool used by some traders and investors to monitor what the “smart money” is betting on. Flow tracks where large institutional players are putting their money, which can be used to interpret sentiment.

The Problem With Following Flow: While tracking flow is one useful tool that can help traders possibly predict future price action across indices, the reason for a large amount of flow is rarely clear.

For example, institutional traders often hedge their plays by taking both sides of a trade through different vehicles. A large institutional trader, such as a market maker or commercial bank may purchase short-dated put contracts of a single security and hedge their trade by going long in an ETF that holds the same security.

As Balchunas noted, October brought in the largest flow since March. But, while March was a bullish month overall, the SPY slumped 8.8% in April and had fallen an additional 8.77% since the first trading day in May.

This indicated the high amount of flow in March was most likely due to institutions hedging their bearish bets with bullish positions in ETFs.

See Also: US Economy Adds 261,000 Jobs In October, And It's Showing No Signs Of Cooling

Photo: everything possible via Shutterstock

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Posted In: Sector ETFsOptionsTop StoriesMarketsETFsEric BalchunasThe Three Amigos
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