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Anyone trading small caps might be interested in an article in today's
Wall Street Journal 3/9/2007 which discusses how ETF trading is
distorting volume and may hurt volume as a technical indicator.
The article is in the Money Section. ETFs Build Presence in Shares
http://users2.wsj.com/lmda/do/checkLogin?mg=wsj-users2&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB117340540305631813.html%3Fmod%3Dtodays_us_nonsub_money_and_investing
Most people do not understand ETF volume, the impact ETF volume has on
individual share volume or individual share prices. They think ETFs
are priced on supply and demand and that ETF volume works the same as
the volume of ordinary stocks. In addition, there are differences in
how mark to market pricing is done on the trading exchanges.
Vomund explains some of this in his book ETF Trading Strategies Revealed
There are also articles that explain bits and pieces on the internet.
Specialized, or sector ETFs, are having the same impact on stock
volume totals in individual shares in a sector or in a specialized
area like socially responsible stocks. As the specialized ETFs grow in
popularity so will their ability to distort the meaning of share
volume and share pricing.
When an ETF fails to achieve enough trading volume to cover its costs,
the sponsor will liquidate it and cause the opposite volume issues to
the downside.
All this will provide more support for Random Walk.
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