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 - August 11, 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:
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. | | |
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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