Play the Players

Today’s comment is a quick look at specific ETFs – what may be appealing, what may not – right now.  Our guides, as usual, are the Block Desk and Prop Trade Desk guys at the bulge bracket investment banks, according to the bets they are making.

Where there is volume, SKF the leveraged (2x) inverse (short) of financial stocks is their best odds-on play, but it’s a modest chance (65-35 odds) on a big gain (21%) that might include a -12% drawdown from cost along the way.

Not what you’re looking for?  Next best bet of the moment (with market liquidity) is SLV, i-Shares in silver.  They offer about the same odds with less volatility (+10%, -6%) and about half the odds-on payoff experience of SKF.  It falls just under our minimum return hurdle of 5% in 3 months.

Now if you’re willing to work in something that typically only trades 200,000 shares a day, then IAU, the COMEX gold iShares may appeal.  They present a very high odds for a +10% 3-month gain with only a -1% downside history.  Here history is the rub.  These ETFs have only 9 months of trading for us to track, and only a dozen days with forecasts as good as today’s.  Evolving experience may not be as favorable.

An alternative in the less-liquid-trading camp at this date is PIN, the Powershares India ETF.  More history for us to work from (year and a half) but it is back to the mediocre gain-loss odds (63-37) for big potential price swings (+23%, -12%), like SKF.

Sorry, but right now there are no stamp-your-foot, pound-on-the-table screaming buy opportunities.  Better to keep your powder dry.  Check in tomorrow or later in the week, and we’ll see if something better appears.

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