ETF Flows "Going Nuclear"

The latest affirmation of the risk-on shift in market sentiment observed in recent days, is that on Wednesday ETFs concluded the session accounting for just 24% of overall activity (down notably from the ytd avg = 28% and sharply from the near record 38% one month ago). As a reminder, high ETF activity tends to correlate with marketwide shorting as funds use ETFs as the short leg of single-name pair trades to hedge market risk: the higher the ETF shorting activity, the more prevalent risk-off; and vice versa.

According to Goldman's ETF desk (full note available to pro subs), yesterday’s price action could be summarized as a course with three turns: