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Dr. Kris
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Dr. Kris has two degrees from MIT because one just wasn't enough. Her life goal was to figure out the universe and having done that (at least to her satisfaction), she decided to tackle something even more difficult—the stock market. Applying the scientific method along with an insatiably... More
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  • Market Notes: IYT/GDX Pairs Trade Update -- February 15 2 comments
    Feb 15, 2013 4:50 PM | about stocks: IYT, GDX, GDXJ

    4:00 pm ET: The Dow Transport Index (DTX) is finally looking a little tired, if the extended topping tail on its candlestick chart is any indication (and it is). The market has been in consolidation mode for the past week and it's now looking as if it's finally ready to take that break we've been talking about. The VIX (volatility index) today tested its multi-year low put in last month and I suspect we could see a mild rebound off this level as the major averages take their break. But is this extremely low VIX telling us that we've reached *the* market high?

    I don't think so. Look at the quarterly chart of the VIX above and you'll see that there's still some downside room left. My apologies if I'm starting to sound like a broken record, but I still believe we'll see an S&P (SPX) retest of the 1550-1575 level before any major market correction, and this chart of the VIX is another indication that this scenario can very well happen. It just needs to it before the reality of sequestration sets in on March 1st.

    Trade of the Day Update: Long Transports/Short Gold miners pairs trade On January 24th I recommended a pairs trade to take advantage of the rotation out of gold and into stocks. Since the Transports have been leading the market, I suggested taking a long position in the transport etf, IYT, either by buying the stock itself or call options, and initiating a short position in the gold miners, the laggards of the gold group.

    Since then, both sides have paid off. The IYT had the misfortune of taking a breather just after the recommendation, but since then it has come back to post a 1.6% gain. On the other hand, the gold miners have been trending down steadily. The gold miner etf (NYSEARCA:GDX) is off 7.7%. The junior gold miner etf (NYSEARCA:GDXJ) sank even more, shedding nearly 11% of its value. As mentioned above, the transports are looking rather toppy and I'd recommend taking your chips off the table and closing out this side of the trade. However, the gold miners still are digging deeper so I'd keep this side open at least until we see something to indicate a reversal in price.

    That's it for now. Tax season is rapidly approaching--have you organized your tax info and made your tax appointment yet? If not, the upcoming three day weekend is a good time to start. Have fun--I know I will (ugh!).

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Comments (2)
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  • sundate36
    , contributor
    Comments (291) | Send Message
     
    Great call on the pair trade, Dr. K!
    15 Feb 2013, 05:01 PM Reply Like
  • Dr. Kris
    , contributor
    Comments (330) | Send Message
     
    Author’s reply » Thanks! Worked well on the downside especially.
    15 Feb 2013, 05:07 PM Reply Like
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