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When BTFD Fails: Spot The Oil ETF "Knife Catchers"

With crude oil prices once again testing cycle (multi-year) lows this morning - following a brief bounce on the death of Saudi King Abdullah - we thought it intriguing that for the 4th month in a row fund flows into the iPath Oil ETN have surged to almost six year highs. As Bloomberg Briefs reports, "the kind of flows that we're seeing can only be explained by 'catch the falling knife' behavior, where people are trying to call the bottom," as December and Jnauary flows now top $400 million - the most in 6 years for a 2-month period (as price plummet further). But 'investors' are piling into double- and triple- levered "up" oil bets too...

 

Follow the flows... to insolvency...

 

As Bloomberg Briefs adds,

An exchange-traded note that lets buyers wager on a rebound in oil is attracting assets at the fastest pace in almost six years.

 

"The kind of flows that we're seeing can only be explained by 'catch the falling knife' behavior, where people are trying to call the bottom," said Dave Nadig, chief investment officer of ETF.com in San Francisco.

 

...

 

ETN investors aren't limiting their bets to an oil-price rebound. Both the VelocityShares Daily 3x Long Crude ETN, which gains if prices rise, and the VelocityShares Daily 3x Inverse Crude ETN, which does well if oil falls, had their biggest weekly inflows ever over the past two weeks, Bloomberg data show. Even in those ETNs, which were issued by Credit Suisse Group AG in 2012 and are often used as short-term investments, the prevailing bet has been on a rebound.

 

"There has been significantly more flows into the up oil product than the down oil product," said Nick Cherney, chief investment officer at VelocityShares LLC. The long product had $119.2 million of inflows in the two weeks through Jan. 16, while the short product had $56.5 million, Bloomberg data show.

 

The iPath ETN, issued by Barclays Plc in 2006, has returned negative 52 percent over the 12 months through yesterday. The VelocityShares long ETN fell 89 percent, while plunge in Oil Sparks Buying of iPath ETN the VelocityShares short ETN more than quadrupled.

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