An article in today's WSJ provides more data on how massive beefer trading in ETFs is distorting market statistics and volume indicators on many small stocks. Fund flows caused by trading in three large small cap ETFs accounts for 20-40% of the trading in many small cap stocks. Regular small cap index funds have no such effect as fund flow variations are much smaller since they are not beefer trading vehicles.
So what does this mean? Obviously volume indicators are distorted, but advance-decline ratios are also distorted. I suspect even new high/new low indicators and many other market statistics are distorted. The statistics were designed to capture information from many independent investor/trader decisions using the power of statistical aggregation. But if the data are NOT due to independent decisions, but are instead driven by bulk flows of money into or out of a few ETFs, the statistics lose their value.