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After Hours Most Active for May 12, 2016 : ALK, TXRH, DNR, JWN, YHOO, JCI, ODP, APC, INTC, GE, AAPL, MSFT

The NASDAQ 100 After Hours Indicator is down 1.04 to 4,341.77. The total After hours volume is currently 25,454,751 shares traded. The following are the most active stocks for the after hours session Alaska Air Group, Inc. ( ALK

Diamond In The Rough? Coal Miners Outpace Nearly All Industries

Mining groups hold three of the top 15 rankings among IBD’s 197 industry groups. Gold miners rank No. 1. Coal has climbed to No. 7. Mining equipment ranks No. 15, while ore miners are at No. 35. Strength in coal, mining equipment and ore mining stocks is generally a bullish sign, suggesting that global economies are growing hungry for raw materials. Gold mining stocks generally rise and fall in tandem with gold prices. Gold prices typically rise when investors seek shelter from risk, which tends to make strength in gold mining stocks a negative indicator. The fact that gold miners have been the top-ranked industry for a solid eight weeks underscores the challenges in the current stock market. As a group, coal mining stocks have jumped 20% since the start of Q1, rising from dead last in IBD’s industry rankings to their no. 7 ranking on Thursday in just four weeks. That extraordinary advance began just as industry giant Peabody Energy declared bankruptcy in mid-April. Peabody plans to continue operations unabated, it said in a statement, while seeking to reduce debt and costs in the face of an “unprecedented industry downturn.” Why the bounce in coal stocks? Natural gas prices recovered 35% since mid-March. That is far short of oil’s 78% rebound, but enough to give some hope that coal will be somewhat more competitive with natural gas among electrical generators. Group heavyweight Consol Energy ( CNX ) focuses on thermal coal used in power production. Steel’s Role The other side of the equation is steel. China, the world’s largest steelmaker, announced in February that it planned to trim its steel production capacity by up to 150 million metric tons in the next five years. The aim is to increase industry efficiency and profitability, but China continued to roll out steel at record levels in March, exporting much of the surplus to international markets. But the plan — alongside manufacturing and construction data showing flickering signs of economic strength — have launched rallies in steel, ore mining and coal mining stocks. Many miners in the East that produce high-energy anthracite coal, called metallurgical coal, used in the steelmaking process have benefited from the rally. In addition, a number of stocks in the industry offer dividends, and depressed share prices have driven yields to tempting levels. Suncoke Energy ( SXC ) currently offers a yield of more than 10%; Alliance Resource Partners ( ARLP ) and Alliance Holdings ( AHGP ) around 12%. This coaxes income investors to try to jump in at low levels and lock in higher returns. Gold mining stocks climbed in 12 of 14 weeks through the end of April. The group has backed off modestly in May, but not enough to surrender its top-ranked status. Gold prices rose 22% in December through March, and have since consolidated mostly below the March high of around $1,278 an ounce. Highest-Flying Stock The highest-flying stock in the group is Russia’s Polyus ( OPYGY ). The stock, thinly traded in the U.S., is up nearly 600% since February. That has played a key role in securing gold’s strong group ranking. But more broad-based players including Barrick Gold ( ABX ), Newmont Mining ( NEM ), Goldcorp ( GG ) and others have also lodged significant rallies from January lows. Many companies in the group are projected to post hefty earnings turnarounds this year and next, as rising gold prices and capacity investments come on line after several years of earnings and revenue declines. But the results continue to be hit and miss. The consensus estimate for Barrick’s EPS shows a 77% increase this year on a 12% decline in revenue. Newmont’s EPS are expected to rise 26% with a 3% revenue gain. Goldcorp’s estimates are for EPS jumping 286% while revenue declines 11%.

Outperforming Buy And Hold Does Not Prove Skill

It is common in finance to compare returns of market timing strategies to buy and hold returns. Although this is useful in determining any excess returns achieved by the timing strategy, it is far from a proof of skill. This is because, depending on the path prices follow, random traders may achieve returns much higher than buy and hold. I will approach this problem by providing two examples that are based on simulating random traders who use a fair coin to purchase shares in SPY (NYSEARCA: SPY ) at the close of a trading day and when heads show up. The shares are sold at the close of a day when tails show up and this is repeated for the whole price history under consideration. Then, the simulation is repeated 20,000 times to get a distribution of the net return of all random traders. Starting capital is $100K and commission is $0.01 per share. Equity is fully invested. Results for 2013 Click to enlarge The SPY buy and hold total return for 2013 was about 26.45%. It is shown in the results above that the return for significance at the 5% level is about 22%, which means that this return is better than the return of 95% of random traders. In this case, a return of a market timing strategy below the buy and hold but above 22% can be an indication of skill since it is significant at the 5% level or better. Also note that more than 97% of random long traders made a profit in 2013 due to the strong uptrend. Results for 2015 Click to enlarge Although the SPY buy and hold total return for 2015 was just 1.3%, the minimum significant return for comparison to random traders was about 14%! A market timing strategy would have to generate a return of more than 14% to prove that it was better than 95% of random traders, or significant at the 5% level. About half of the random long traders made a net profit in 2015, still better than casino odds of course. Therefore, even a return of 10% would not be sufficient for proving skill in this case, as it would not be significant at the 5% level. Therefore, comparing to buy and hold for proving skill may not make sense depending on the path prices follow. During strong uptrends, the minimum significant return to support skill may be closer to buy and hold but when markets consolidate it may be much higher because there are always those lucky random traders that skew the distribution of returns. As a corollary, comparing average returns to buy and hold returns may make no sense at all since the difficulty of generating excess alpha varies from year to year. Original article Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Analysis program: Price Action Lab