what we do
Our focus is on the development of proprietary geodesic models that characterize the behavior of leveraged long/short ETFs in pairs trades using first principles of Hamilton-Lagrange-Euler mechanics. Because of tracking errors & daily compounding phenomena, equal weightings of leveraged ETFs in a pairs trade are virtually never 50-50. Daily data & graphics will show subscribers where neutral pair weightings have moved along the path of the pairs geodesic thereby providing multiple market direction & re-balance indicators.
Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers.
visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. |
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Today's Commentary
previous model indication: bearish on the S&P 500 since 2009-08-17 current model indication: bullish on the S&P 500 as of 2009-08-21 last week was on of the shortest bearish calls in time i can remember. the only day down was monday which precipitated the bearish signal but then the remainder of the week was - buy, buy, buy! note how the angular velocity parameter pulled back, relieving pressure from going to the downside. today's (8-24-2009) action, though not down to the extent as last monday, was a bit ominous. at one point the S&P 500 was up 1% or so and then a midday selloff took the index right back to unchanged for the day. no matter how small, midday reversals are not helpful to the bullish mentality. the fed's purchase of treasuries may have had the biggest influence in equities today. in addition, as the market has been going up, investors are stopping along the way to buy protection in the form of bonds & put options. disclosure: in my pairs trade i am weighted 95% spy & 5% sh. this is couterweighted with an accululating position in TLT, TLO TLH, IEF, IEI, BIV, BND & TIP. | | |
Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | |
Today's Commentary
as i indicated in an update last week, i dropped SDS & SSO from the S&P 500 model and substituted SH & SPY instead. so much negative compounding resulted in SSO becoming inelastic and is no longer able to counter the action of SDS effectively. it just happens that if the market did not stop going up like it has today and friday, the pairs trade was in danger of picking up inertia and moving out of dynamic equilibrium. SH is 1X inverse the S&P 500 and SPY is 1X the index.
note as of today we have again the condition where the S&P 500 market sentiment has changed from bullish to bearish according the geodesics of the pair. the model does not indicate how long this will be the case so as always hedging would be wise. the spreadsheet contains the neutral weights for SH & SPY. the weights can be used the same way as before.
disclosures: as of midday today i positioned my pair 50:50 SH & SPY and plan to let the pair adjust their weights according to market direction whichever way it wants to go. as the index trends, the ETF with the highest RSI will determine the pair value and weight spread. in a downward trend, SH should increase in weight and move the pair value up from here.
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| | as mentioned in yesterday's subscriber commentary, SSO has undergone undergone negative compounding & tracking error over the last year. it may soon not be possible to maintain SDS & SSO in equilibrium by adjusting only the weights of the pair. this introduces 2 complications. 1) if the market continues to skyroket higher, the pair will become dynamic as SDS declines and begins to drag down the pair with it. 2) if the market were to roll-over, which i think is an increasing likelyhood, SSO will undergo more "non-coformal" plastic flow which will render the ETF flat with very little to no elasticity to come back and balance the pair.
therefore after considerable review, i will continue my analysis of the S&P 500 index using SH instead of SDS and SPY instead of SSO. the substitution of the ETFs will change the magnitudes of the geodesic paramters but most of the important relationships between rates of change will stay intact which is the most valuable portion of the analysis anyway. for example, using the new ETFs the points in time when the rates of change of the parametric values cross is virtually identical to using the 2X levered ETFs. the crossing of these variables signal an indication index sentiment has changed.
finally, despite today's run up in the S&P 500, the probability of sentiment moved higher today than where it was yesterday using both geodesic models. this is not a prediction, just an increasing likelyhood the S&P 500 is in the process of topping out for a while.
stay tuned for more updates. | | |
Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | | | Today's Commentary
the S&P 500 index sold off today and sellers managed to contain late day buying & closed near the intraday low. the index fell -1.27%. this was the second down day in a row and the 4th out of the last five trading days the index has now closed down. whatelse that is noteworthy is the index today has not closed down this much in 1 trading day since july-7-2009. as far as the model analysis goes, the geodesic parameter rates of change are steadily approaching a cross which would signal a change in market sentiment. see below. however, based on the track record of this rally i will not speculate on when the cross will happen or if a sell-off will be sustained. every month since april around the 3rd week of the month the index starts to fawn as if it wants to roll over and all of a sudden buyers rush in driving the index higher. now that we are in august you'd figure, well, it's been 5 months of rally, rally, rally. up +50% from the lows. surely the index is due for a correction. sadely many market pronosticators, including myself, have been wrong about a correction since may. i see what the numbers are telling me from a technical perspective and i see what busines & economic fundamentals are telling me and i've guessed wrong about what the market will everytime. so i'm a bit more cautious and am positioned in my own pairs trade accordingly. in addition, i'm concerned that SSO has lost a great deal of needed "elastic memory" due to non-linear compounding & tracking errors. look at the chart below.  the light blue line is a relative %change plot for SDS and the orange line is the same for SSO. while the line for SDS has had a reasonable amount of change up and down for the last year, SSO has kind of remained compressed. instead of behaving like a compression spring and elongated after the load is removed, SSO is behaving more clay or silicone. a piece of clay that has been pressed in by an object remembers the shape of the object after the object has been removed from the clay. that's what makes clay or silicone a great material for mold making. ideally we like to have "stored energy" release itself as the opposing load decreases. otherwise we run into a case where the pair can not be kept in static equilibrium by changing the weights of the pairs alone. unless the market begins to significantly correct in the next week or so, the pairs trade will become dynamic and certain assumptions will have to change. more on this soon. disclosures: am about 50:50 SDS & SSO with my pairs trade at the close of today. | | |
Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | | | Today's Commentary
no particular commentary on the S&P 500 index action today. however, the model is beginning to show signs of weakness, again, in the index rally. the most important charts to watch this week are the SDS-SSO geodesic chart and the corresponding parametric rates of change chart. see below. first the parametric rates of change chart. the slopes of the 2 lines have been in the process of pointing to intersect each other for 8 trading days and the rate has picked steam today. the point in time when they intersect or cross each other will be a signal indicating a change in market sentiment. the next change would be from bullish to bearish. trying to project when this will happen exactly is a fools game. the dynamics of the market are not deterministic and if a change in sentiment does happen, there's nothing stopping the market to change it's mind and change sentiment again. so keep and eye on this chart on a regular basis. the chart of the geodesic shows how far the rally has extended itself in the last 3 weeks. the point at which the yellow coordinates depart from symmetry with the top line is a point i call "lost in space." the euphoria of an economic recovery has spilled over into buying at a point where the S&P 500 index has already retraced 50% from it's lows in march. this week the treasury has planned t-bill & bond auctions so expect to see money flow into them for protection that would have possibly flowed into equities. disclosures: my pair ratio currently is 70% SSO & 30% SSO. however i have reduced my overall exposure to the pairs trade by decreasing my long holdings in both SDS & SSO. the pairs trade is 2:1 over long holdings in the following ETFs in another account: BIV, BND, IEF, IEI, TLH, TLH & UUP. the 2:1 ratio could possibly change lower by the end of the week. | | |
Disclaimer
Equity Informatics is a developer and service provider of proprietary financial equity pricing models & trading methods. The company familiarizes subscribers with the basic thesis of our models, provides subscribers with daily neutral pair weightings and methodologies on how to use the data as intended. subscribers shall not share any information obtained from equity informatics with any other party. use of these services are granted only to and intended for the benefit of the subscriber. Equity Informatics does not offer the sale of equities nor do our trading models constitute trading advise. It is incumbent on potential clients to perform due diligence and seek a professional financial adviser to help you determine whether subscribing to the company's services are suitable for your financial situation and level of risk. No guarentees of performance are expressly or implicitly offered nor does Equity Informatics guarantee the accuracy of market information used to provide model data to our client. equity informatics does not assume responsibility for lost principal, lost gains or tax consequences.
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