You bring up an interesting point. As I understand it the bid/ask action of an ETF (as a synthetic instrument) is entirely dependent on the price action of its underlying basket of stocks. As a result, the bid/ask of an ETF move with the composite price action of the underlying basket which is affected most often by the good old volume precedes price paradigm. However, the volume of an ETF itself isn't correlated with the price of that ETF - it just shows how many shares were traded and doesn't follow the traditional volume/price relationship. As a result, big volume on an ETF isn't going to move the bid/ask of that ETF at all - the price action and volume of the underlying basket do that.
I've read that as many as 75% of the trades placed on the big boards are placed by algos. If that's true, then I imagine that a bunch of algos are trading the individual stocks in a given ETF's basket, other algos are trading the ETF itself, and the rest of us humans are just trying to go along for the ride without getting bucked off.
The bid/ask price swings on SRS are beyond crazy; when SRS falls off a cliff the bid/ask declines so fast and huge that I've got to believe that algos are involved. Lately I've been trying to jump on board short just as it begins its descent. Sometimes I make it, sometimes I don't.
GLTAUH (Good Luck to All Us Humans)
