A major flaw of using indexes for trading or trend analysis is
that the banks are long and short various components of the index
simultaneously.
If one were looking at the GDXJ for a reentry after this last
rally up to June highs, they'd have been way too early as most of
these stocks (at least for most periods of time in this gold bull
market) get reshorted immediately after a short-covering or
widespread speculative rally.
One can also miss a nascent rally when leading stocks are
relatively outperforming vs. the index, which may look like it's
going nowhere. If you look at the charts of the stocks in my
basket, you'll see that some of them were non-confirming lows in
mid-may and were in light retracement / follow-on bullish patterns
before this past week's runup.
The other point is, the banksters are both long and short at any
given time. I think a basket of leading long stocks
hedged with underperforming shorts (DUST, GDXJ long puts etc. at
highs / resistance) is a logical approach for the average retail
investor.
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What is short arb'd
GOLD / SILVER BASKETS 22 % VS GDX 10% OFF MAY LOWS
Posted by steveo on 30th of Jul 2012 at 01:10 pm
What is short arb'd
Long / Short abitraged
Posted by cmunny on 30th of Jul 2012 at 01:28 pm
A major flaw of using indexes for trading or trend analysis is that the banks are long and short various components of the index simultaneously.
If one were looking at the GDXJ for a reentry after this last rally up to June highs, they'd have been way too early as most of these stocks (at least for most periods of time in this gold bull market) get reshorted immediately after a short-covering or widespread speculative rally.
One can also miss a nascent rally when leading stocks are relatively outperforming vs. the index, which may look like it's going nowhere. If you look at the charts of the stocks in my basket, you'll see that some of them were non-confirming lows in mid-may and were in light retracement / follow-on bullish patterns before this past week's runup.
The other point is, the banksters are both long and short at any given time. I think a basket of leading long stocks hedged with underperforming shorts (DUST, GDXJ long puts etc. at highs / resistance) is a logical approach for the average retail investor.