Luck-o-the-Irish's  Instablog

I've constantly read that SKF, and to a lesser degree, its evil cousin FAZ, lead the market around however they please. Leveraged ETFs...its what I do. To examine this thesis, our firm created a proprietary ratio that constantly examines the ratio of the short volume dollars traded against the long dollars traded in each sector (VWAP times price) to see if one really leads the other. Interesting enough that ratio is the same today for the financial sector (1.44) as it was on April 2nd (1.39), a day in which the XLF rocketed higher. Even more interesting, the ratio was 1.22 on April 3rd, an even bigger day for the XLF, and we saw that ratio move to 1.23 yesterday, a day when the XLF was down sharply. This ratio DOES take into account the leveraged nature of these securities. This ratio has not given us a tradeable advantage yet, but we are still working on its applications; however, it has demonstrated to us that the tail is not wagging the dog. These products are an effect, not a cause.