2009-04-07 SDS-SSO Subscriber Update

Dear Subscriber, thank you again for subscribing to my online equity information service. the latest S&P 500 Index Arb Model analysis is available for download. you are able to browse the directory to access previous analysis releases. if you ever misplace your login, email me stating so using the original email address you provided when subscribing through paypal. Today's Commentary 1) today the markets did what i expected to happen: continue to sell off! the "reflation" rally has been over-bought for several days and the market is deciding to get spooked over bad news over the specter of dismal earnings reports and negative guidance statements for that matter. midday today a skirmish of sorts erupted between the bears and the bulls. the bulls tried to reverse the selling trend but retreated on lighter buying volume. the bulls did manage to pair back some losses toward the end of the trading session but the markets finished overwhelmingly down for the day. Dow 7,789.56 -186.29 (-2.34%) S&P 500 815.55 -19.93 (-2.39%) Nasdaq 1,561.61 -45.10 (-2.81%) 10y bond 2.90% +0.01 (0.35%) source: google finance 2) the %change(m) indicator nudged ever so slightly toward the x-axis confirming a significant shift in trader sentiment since the markets peaked a few days ago. it's interesting the VIX (CBEO volatility index) dropped off -1.32% counter to intuition. the VIX usually spikes on sharp sell offs like today but in fact went down. the only thing i can read into this is investors are a bit confounded over which way they think the economy is going and hence the stock market. 3) based on the value and direction of %change(m), S&P market sentiment is all but officially bearish using it's own measures. it will be officially bearish once it crosses the x-axis of it's plot versus time. the probability is high the indicator will cross-over by this thursday EOD. therefore i am calling a re-balance back to over-weighting SDS for ultra aggressive performance seekers and over-weight SSO for delta neutral seekers. these two methods counter each other as far as pair weightings are concerned. the reason relates back to which ETF in the pair currently has the greatest time rate of change. during bearish market phases, SDS typically changes the most. delta neutral seekers need to compensate for this by using a higher pair weighting for SSO. the daily spreadsheet update will indicate the optimal delta neutral weights to use. 4) several things i'm working on: completing final touchups of the support blog for subscribers and visitors. the site address is http://squark62.blogspot.com/. completing the analysis of the blended performance method to trading evaluating sharpe ratios, beta and CAPM for each of the 3 trading methods: benchmark method, ultra agressive method and the new blended method. updating the model to include technical analysis of the S&P 500 index for compare/contrast against %change(m) and other things i take note of in the model. a subscribers guide to ultimately include discussion of the model itself, performance methods for trading, and some broker trading considerations 5) final words today: stay cautious and get set to build up some cash by selling SDS into the decline once were officially in bearish territory. there are some techiques for doing this i'll go into but a conservative way is to sell chunks of SDS until you match a neutral weighting right before the next rally starts to pick up. perfect timing is impossible so be content to take incremental gains when you can. best regards, mike james Managing Member Equity Informatics, LLC phone:302-220-3864