Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the AI ETF Surge Signal
Transcript
- Lucas: So the big story that caught my eye today — and this is fresh off the wires — JPMorgan put out a report noting a dramatic jump in ai themed ETFs. Luna: I saw that. The headline says 'despite a rough quarter.' That part is interesting — why would money flow into AI funds if the quarter was rough? Lucas: Exactly. That's the puzzle. The S&P 500 is at 7,408, down about seven-tenths of a percent over the last five days. The Nasdaq's off one and a half. So we're not in a raging bull market right now. Yet these AI ETFs are seeing inflows. Luna: What's the actual number? The report must have a figure. Lucas: They didn't give a single headline number in the summary I saw, but the language was 'dramatic jump.' For a bank like JPMorgan to use that word, it's significant. And it lines up with what we've been seeing in the VVIX. Luna: The VVIX is at 102.17, down about two and a half percent over five days. So options on the VIX are getting cheaper, but the VIX itself is at 18.70 — that's not exactly complacent territory. Lucas: Right. The VIX at 18.70 is elevated. Historically, above 20 is fear, below 12 is complacency. 18.70 is in that worried but not panicked zone. And the VVIX at 102 suggests the market is pricing in a lot of tail risk — but maybe rotating into specific themes. Luna: So the AI ETF surge could be a rotation. Money coming out of broad tech or out of energy and into AI as a thematic bet, despite the headwinds. Lucas: That's my read. And for a day trader, that kind of rotation creates short-term momentum. You can trade the ETF itself, or you can trade the components that are heavily weighted in those funds. Luna: What's the top holding in most AI ETFs? I know it varies, but typically it's names like NVIDIA, Microsoft, Alphabet. Lucas: Correct. NVIDIA being the poster child. But here's the thing — if you look at the price action in NVIDIA over the last few weeks, it's been choppy. The AI ETF inflows might be buying the dip, but that doesn't mean the stock is going to rip higher immediately. Luna: So how do you trade the signal without getting caught in a false breakout? Lucas: You need to look at the ETF's volume relative to its average. A surge in volume on a green day is confirmation. If the ETF gaps up on heavy volume, that's a momentum entry. But if it gaps up on low volume, that's a trap. Luna: And which AI ETF are we talking about? There are a bunch now. Lucas: The biggest one is the Global X Robotics & AI ETF, ticker B-O-T-Z. But there's also the ARK Autonomous Technology & Robotics ETF, ticker A-R-K-Q. And the AI Powered Equity ETF, ticker a i e q. The flows are probably concentrated in the largest ones. Luna: BOTZ has been around for a while. That one has decent liquidity. For a day trader, liquidity is key. Lucas: Absolutely. You don't want to be in an ETF that trades a few thousand shares a day. BOTZ does about a million shares on a normal day. ARKQ does a few hundred thousand. So you can get in and out without too much slippage. Luna: But back to the JPMorgan report — they also mentioned the rough quarter. What's the rough quarter referencing? Lucas: I think it's referencing the broader market selloff we've seen in Q2 and early Q3. Tech has been under pressure. The Nasdaq is down about 8% from its highs in April. So to see inflows into a tech-adjacent thematic ETF is counterintuitive. Luna: Unless it's a buy the dip mentality. People see AI as a long-term trend, and they're using the pullback to accumulate. Lucas: Right. And that's exactly what the flows suggest. But for a day trader, the question is: can you ride that wave for a few hours or a few days? The answer is yes, if you use the right signals. Luna: What other signals are you looking at besides volume? Lucas: I look at the relative strength of the ETF compared to the S&P 500. If BOTZ is up 1% and the S&P is flat, that's a relative strength signal. I also look at the slope of the 20-day moving average. If it's flattening or turning up, that's a bullish setup. Luna: And what about the VIX? At 18.70, does that tell you anything about AI ETFs specifically? Lucas: Indirectly. A VIX at 18.70 means volatility is elevated, which typically means wider stops and smaller position sizes. But it also means that if you catch a move, it can be big. So you need to size accordingly. Luna: There's also the oil story. Oil prices are ripping higher, and there's talk of a rate hike. That could hit growth stocks, including AI names. Lucas: That's the counter-signal. Higher oil is inflationary, and a rate hike would compress valuations on high-duration stocks like tech. So the AI ETF inflows are swimming against that current. You have to respect that headwind. Luna: So how do you reconcile the two? The inflows say buy, but the macro says be careful. Lucas: You use a tighter time frame. I'd trade the ETF on a 15-minute chart, looking for breakouts above the previous day's high with volume. If it fails, you get out quickly. The macro headwind means you don't hold overnight unless you have a strong conviction. Luna: That makes sense. So it's a short-term momentum play, not a long-term investment. Lucas: Exactly. The JPMorgan report is a catalyst, but the proof is in the price action. You wait for the market to confirm the signal. Luna: And what about the components? Do you ever trade the individual stocks instead of the ETF? Lucas: Sometimes. If an ETF is heavily weighted in one name, like NVIDIA in BOTZ, you might get a purer play by trading the stock. But the ETF gives you diversification and lower volatility. For a day trader, the ETF is often better because it doesn't gap as much overnight. Luna: Speaking of gaps — if we see a gap up tomorrow in BOTZ, what's your plan? Lucas: I'd look at the pre-market volume. If it's above the 20-day average in the first 30 minutes, I'd buy the first pullback that holds above the opening range low. If it gaps and fades, I'd wait for a re-test of the previous day's close. Luna: So you don't chase the gap. Lucas: Never. Chasing gaps is the fastest way to lose money. You want to buy on a dip within the trend, not at the extreme. Luna: I think that's a good rule. And the JPMorgan report gives us a reason to watch these ETFs closely. Lucas: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep the conversation going without any ads interrupting. Lucas: Exactly. So back to the AI ETFs — one more thing I want to mention. The volume surge we're seeing might be institutional. Institutions often use ETFs to get exposure quickly. That's a positive signal. Luna: How can you tell if it's institutional or retail? Lucas: You can't know for sure, but block trades in the underlying stocks are a clue. If you see large prints in NVIDIA or Microsoft around the same time the ETF volume spikes, that's institutional. Luna: So you're triangulating between the ETF flow and the component flow. Lucas: Exactly. And that gives you more confidence in the trade. Luna: Alright, so let's say we get a confirmation tomorrow. What's the target? Lucas: For BOTZ, I'd look at the recent highs around $32. It's been trading in a range between $28 and $32. If it breaks above $32 with volume, that's a breakout. If not, it's range-bound and you buy the bottom, sell the top. Luna: And the stop? Lucas: Below the 20-day moving average, which is around $30. So a $2 range. That's a decent risk-reward if you're targeting $32. Luna: I like that. Clean and simple. Lucas: The key takeaway from today: the AI ETF surge is a real signal, but you have to filter it through the macro environment. Oil at $100 and a potential rate hike are headwinds. So trade it short-term, use volume for confirmation, and don't overstay your welcome. Luna: And keep an eye on the VIX. If it spikes above 20, all bets are off. Lucas: Right. That would be a regime change. But for now, 18.70 is manageable. We'll see what tomorrow brings.