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.
SDS-SSO Model Update - June 16, 2009
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well, the amplitude of vector c shrunk and the most recent coordinate on the geodesic line moved back toward the apex. diff c & diff theta met and crossed each other which is a clear sign of systemic contraction in the S&P 500. in normal trading conditions this would constitute a signal to re-bias ultra pair portfolios and possibly re-balance neutral pair portfolios.
the market rally has been hyper-extended buy irrational buying on dips since the market rally began in mid-march 2009. if there is any more appetite for buying, i would expect to see buyers come out of the wood-works tomorrow. on the other hand, the RSI indicator for SSO & the S&P 500 have crosed below 50% for the first time since the february 2009 market swoon. so there's plenty to be caution about right now.
the PID-7 indicators are still lagging the rates of change in the geodesic. vector c shrunk a few days in a row about a month ago in may only to have buyers lift the market to it's most recent high of ~946 just last friday. what i want to see now is the neutral portfolio performance line dip below 100% ideally before calling an office change in market direction. i also want to see both PID-7 re-balance indicator cross the x-axis.
so here's what i'm doing now. i've decided to reset my portfolio to neutral. the neutral weightings are already biased toward SDS so if the market goes down, the weight of SDS will increase from here and SSO will decrease. i plan to incrementally add funds in my portfolio at the whatever weight distribution are set when i buy BOTH ETFs. if the weighting of SDS has drifted up to 70%, i will add 70% of my funds to SDS & 30% of my funds to SSO. if the market continues to slide downward, the weight of SDS in the portfolio will continue to increase.
when the scenario above takes place, don't be confused by the change in direction in the neutral weights the model outputs and the actuall weights of the ETFs in the portfolio. remember, when the market slides down the price/share of SDS will increase. at the ed of each day the neutral weights will shift the weighting of SDS down to maintain neutral equilibrium. once i set my pair to neutral and the market continues to slide down, i will not re-balance back to neutral which will defeat the objective. i will let the weights of the portfolio take care of themselves and periodically add new money at whatever weight distribution the pair is presently at the time of purchase.
hope this little bit of strategy helps.
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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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