There’s no consensus on what an unusually high level of trading interest means. Extreme volume sometimes hints at a coming trend change for a particular asset. Other times, it may indicate a great deal of conviction about the asset’s desirability. Still other times, it may mean nothing at all.
Nevertheless, on 3/10/10, I identified 2 ETFs with unusually high trading volume. What’s more, each of the ETFs had money flows moving counter to the price change.
1. MarketVectors Vietnam (NYSE: VNM [1]). This ETF has had an extremely rough go of it since its August 09 inception. Although many investors clamor for frontier market exposure, they often do so without realizing the perils. In the case of VNM, P/Es are rather rich and the rationale behind the Market Vectors Vietnam Index [2] is somewhat shaky.
The last time (and only other time) that volume was 4x the normal share level, the activity preceded a major 15% price correction from existing levels. This time, with volume of 400,000 shares, $8 million new dollars came into the $100 million fund on a day when VNM lost 0.82%. That’s an 8% rise in assets! (Is VNM looking to move significantly higher?)
2. iShares Barclays MBS Bond (NYSE: MBS [3]). Mortgage-backed securities… Ginnie Maes, Fannie Maes, Freddies. Here’s the stuff at the heart of the credit collapse. Today, the vast majority of mortgages are owned by these government sponsored entities… and the government won’t let the quasi-government run companies fail… right?
That may be all well and good. Yet there was 5x the normal trading volume on MBB this afternoon… investors selling into strength. While the $50 million net outflow is a negligible percentage of the $1.7 billion at MBB’s disposal, the last time volume jumped this dramatically… in December… it precipitated a trend reversal.
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Disclosure Statement: ETF Expert [6] is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. [7] web site.