The week’s trading volume has been on the thin side, particularly for an options expiration week. Of course, not all volume is created equal.
One the areas of the investment world where I pay close attention to volume is double inverse ETFs, which include the UltraShort ETFs pioneered by ProShares. The double inverse ETFs are an attractive set of investment vehicles for speculative bears to place their bets, because the oversized payoff if they are correct.
Of the double inverse ETFs, I am particularly fond of the QID, the double inverse ETF for the NASDAQ-100 index [NDX]. The QID has captured the imagination of many retail investors who are not particularly comfortable going short, but have no qualms about making a bearish investment by going long an inverse ETF. Volume patterns in this ETF demonstrate that the QID can be an effective contrarian indicator. Take the chart below, for example, where a 5 day EMA of the volume has been a good indicator of tops in the NDX (the gray area chart on the top) when it rises above the 45-50 million share level.
In a broader sense, ETFs are opening up a new frontier for those who are interested in market sentiment. I will be sharing some of my thinking in this area in the weeks and months ahead.