SDS-SSO Model Update - July 9, 2009

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: SDS-vs-SSO-20090709-subscriber.xls.zip - (or feel free to browse the directory.) 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 another daily unchanged performance for the S&P 500 index. my 2 primary indicators for market direction changes are still bearish on the index. the first indicator is the chart below: the blue line is still on top of the x-axis since the last crossover on june 16, 2009. but as you see the slopes of the two curves are pointed toward each other and not too far from the x-axis anyway. the second indicator is a plot comparison between the RSI of SDS & SSO. see below: RSI of SDS is greater than RSI for SSO, hence bearish. if the top most chart signals a market direction change, the RSI chart above will confirm that signal usually within a trading day or 2 by flipping RSIs. however, signals from using RSI tends to be a bit noisy (multiple signals in a short period of time). that's why i use this data as a backup to the time series plot of the geodesic parameters. there's yet a few other indicators the sell-off may be taking a breather - 2 chart indicators from the previous version of the model. these indicators tend to be a bit more forward indicating, hence more prone to false signals. see below: this chart was a type of approximation of the behavior for the geodesic before the geodesic was established. when the green line crossed over the x-axis, the approximation signaled a market direction change. it has done so as of today. note that the crossover points in time closely match the coincident crossovers of the geodesic parameters. the approximation above was obtained using principals of machine control theory and tuned to match characteristics of the behavior of the S&P 500 index. the tweaking process to get these results was very arduous and empirical in nature. same with the chart below: another chart from the previous model. when the slope of the green line turned 0, the model indicated a market direction change. the slope of the curve is starting to pull up (positive). since the geodesic is fundamental to the behavior of a "neutrally" weighted pairs trade for SDS & SSO, all signals will be issued using the outcome of that data. the old indicators are still included in the Excel spreadsheet analysis for reference, however. the bottom line is be cautious and keep a far amount of cash on the sidelines. if the index kind of wiggles around it's current position, ultra aggressive hedging one way or the other could result in unexpected losses from chasing noisy signals. best regards, mike james Managing Member Equity Informatics, LLC phone:302-220-3864