ETF Short Interest Rises In February

According to the monthly report from Morgan Stanley, the percentage of the outstanding ETF shares sold short rose to 17.3% in February from an 18 month low of 16.8% in January. This indicates that a few market participants have turned bearish, but overall the level of optimism remains at lofty levels.

In other news, the growth of ETF's and ETF assets remained strong. 12 new ETF funds have been launched this year and Global Daily Trading volume has increased 19.4% year to date. Additionally, total ETF assets rose to $313.6 Billion which represents an increase of 1.7% over the previous month.

ETF's continue to be the fastest growing sector of the Investment MarketPlace as more and more people choose them for the flexibility and low fee structure. As more and more funds come to market, investors are able to customize their portfolios to fit their individual investment styles and objectives. As long as innovation continues the growth in assets should also.

Stock ETF inflows jump as fund sales sluggish

"Meanwhile, cash flooded into exchange-traded funds that invest in domestic equities, as ETFs took in $4.8 billion last week after gathering $740 million the prior week. ETFs are baskets of securities that trade on exchanges like stocks.

ETFs and mutual funds are both seeing solid demand for international stocks, taking in $1 billion and $1.5 billion last week, respectively.

Two large and established ETFs investing in U.S. stocks, the S&P 500-tracking SPDR Trust ( SPY ) and the Nasdaq-100 Trust ( QQQQ ) , were hot sellers last week, gathering $2.3 billion and $1.2 billion."

Stock ETF inflows jump as fund sales sluggish

SMH Showing Strength & BBH Showing Weakness

In the decline these past couple days one of the weakest sectors of the market remains the Biotechs. BBH (Biotech Holdr) at 134.28 are pushing four month lows and are in striking distance of 52 week lows which stand at 127.79. The biotechs were already under pressure at the time Biogen dropped their bombshell last week.

Semiconductors on the other hand as represented by the SMH (Semiconductor Holdr)has rallied back to multi-month highs and signigicant resistance in the $35 area. It's been a nice bounce off the sub $30 January lows, but to create a major breakout it will have to close above $35.

Is Inflation Back?

"As recently as 2003, many U.S investors were worried about deflation. Investors feared that the US economy, characterized by falling prices for technology products, sky-high productivity growth and spare capacity would beging to resemble the moribund economy of the Japanese. In Japan, it was thought, interest rates already at .025% meant that economic stimulus had failed. A deflationary climate meant that businesses lacked pricing incentives and an already sluggish consumer was further encouraged to postpone. But hardly two years later, with US productivity growth slowing, oil hitting all-time highs, and the dollar collapsing, worries about deflation in the US economy seem a far-away dream. Investors are just starting to awaken to another possibility, the so-called I-word: inflation. While it is not clear that it is here yet, an attentive ETF investor will be aware of, and possibly prepared for, an inflationary economy."

Is Inflation Back?:

January's ETF short interest lowest since April 2003

ETF Short Interest has once again fallen to levels not seen since April 2003. This means that investors are confident that the market is not going to decline significantly. This coincides with multi-year lows in volatility and a general complacency among traders. It will be interesting to see if the market can breakout above it's recent trading range without first experiencing a decline in order to rattle investor confidence.

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"January's level of short interest for U.S. exchange-traded funds as a percentage of shares outstanding was the lowest in nearly two years, according to a Monday report from Morgan Stanley.

The last time that ETF short interest dipped below January's level was in April 2003, when it was 500.5 million shares or 16.7 percent of shares outstanding, Morgan Stanley said.

ETF short interest peaked in March 2004 at 1.2 billion shares, or 34.3 percent of shares outstanding. Since then, it has steadily declined each month.

Short interest in publicly traded companies is normally much lower than ETFs, averaging 1 percent to 2 percent of market capitalization."

"The higher the short interest, the more investors are expecting a downturn," said Morgan Stanley analyst Deborah Fuhr. "Short positions tend to fall in value as stocks rise, and vice versa."

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