Slope Of Hope with Tim Knight

Fresh Opportunity to Short the Miners

......closer up.......

Where's the Actual Value in the Homebuilders' ETF?

Data released today showed an increase in home builders' sentiment with respect to current and future single-family homes (the graph is not currently available as I write this post, but here is the link to it on www.forexfactory.com). 

Survivorship Bias (by Consistently Incredulous)

I tripped across a Standard & Poors announcement last week that CBOE Holdings (CBOE) will replace Temple-Inland (formerly TIN) in the S&P MidCap 400 index as International Paper (IP) (S&P 500) completed its acquisition of Temple-Inland on February 13th.  This reminded me of a good Seeking Alpha post I read last year about Survivorship Bias in Index Performance.

I highly recommend the full post; but in a nutshell, survivorship bias in the indices:

“Specifically, in the process of rebalancing (selecting and or deselecting stocks) the indices it is the tendency for failed companies to be excluded from indices because they 1. No longer exist, 2. Their market capitalization has fallen or 3. Their industry is in decline (which likely caused the first two reasons); this is considered Type 1, survivor bias. Inherent in this type of bias is the error you make in just counting the survivors.”

Big Cap Tech versus Internet Bubble 2.0 (by Dave Pinsen)

Big Cap Tech Versus Internet Bubble 2.0

Hey fellow Slopers,

Mike Paulenoff's post Wednesday afternoon ("Big-Cap Tech Stocks to Watch") and the release of Groupon's earnings later in the day, prompted me to take another look the hedging costs of some big cap tech stocks along with the cost hedging Groupon and a few other Internet companies that went public in 2011.

Groupon dropped 15.6% after hours Wednesday after it announced a Q4 loss, but at least one observer was bullish on it on Twitter. You might recognize his name from the late '90s:

 

Groupon now generating operating profit and strong free cash flow read.bi/ypRGEU Meanwhile, idiots still saying "Can't make money"

— Henry Blodget (@hblodget) February 8, 2012

 

Tim's Chicken Scratch Returns

Even occasional readers are acquainted with my near-obsession over the gold miners ETF symbol GDX. I have been closely following an analog I discovered for GDX, and last week I printed it out, took pencil in hand, and clumsily scratched out what seems to be the turning points of the analog.

Below is the 2007-2008 timeframe. Please note these letters have no special meaning, except to order and identify the turning points. For the love of God, don't mistake this for some kind of attempt at Elliott Wave (cough, cough).

Hedging a High Yield Long Idea

Hedging a High Yield Long Idea

Hey Fellow Slopers,

In a post Wednesday morning ("High-Yield Long Idea Idea Continues Strong"), Tim noted the strong performance of his long position in the SPDR Barclays High Yield Bond ETF JNK. Back in August, I looked at the cost of hedging JNK, but I thought it might be worth taking another look after seeing Tim's post. It turns out JNK is pretty inexpensive to hedge right now. The table below shows the cost, as of Wednesday's close, of hedging it against a greater-than-20% drop over the next several months.

A Comparison

For comparison purposes, I've added six of the most actively traded ETFs to the table. First, a reminder about what optimal puts are, and a note about decline thresholds; then, a screen capture showing the optimal puts to hedge JNK.

High-Yield Long Idea Continues Strong

Triple-Bearish ERY Scraping Bottom Again

Miners - The Gift That Keeps On Giving

I'm starting to think I should just stop bothering with anything else but GDX. This is like the new UNG - - it faithfully pushes lower, irrespective of the manipulations of TPTB. Thank you, GDX.

Below the (completely manipulated) SPY is in blue while GDX is in black. It looks like they decoupled a couple of weeks ago.

Euro, Gold Moving Higher

The Euro/US Dollar hit a one-week high this morning at 1.2985 off its low at 1.2620 (+2.85%). It has since corrected and turned up from 1.2890, which happens to be the recent upside breakout plateau of a two-week base-like formation that projects to 1.3080-1.3120. So far, the fact that the Euro/USD preserved support at its prior upside breakout area is a very constructive sign of higher prices ahead, after the current rest-digestion period runs its course in the upcoming hours.