Equity Informatics Blog

S&P 500 Model Update - August 24, 2009

2009-08-24T20:15:00.002-04:00

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.

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.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

S&P 500 Model Update - August 17, 2009

2009-08-17T21:30:00.004-04:00

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:

SH-vs-SPY-20090817-subscriber.xls.zip

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.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

S&P 500 Model Update - August 12, 2009

2009-08-12T20:06:00.002-04:00

Dear Blogger,

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.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - August 11, 2009

2009-08-11T20:50:00.003-04:00

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-20090811-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

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.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - August 10, 2009

2009-08-10T19:55:00.002-04:00

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-20090810-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

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.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - August 5, 2009

2009-08-05T22:35:00.003-04:00

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.

Today's Commentary

the S&P 500 index took a breather today & closed down -0.3%, essentially erasing yesterdays gains. the index followed a similar path as yesterday by starting down but rallied back to positive territory util sellers finally brought the index down on light volume.

let's put where we are in perspective. the S&P 500 and it's companion major averages have broken out and are sitting at or near new highs for the year. while the geodesic parameter vector-c has continued to move further away from the apex of it's path, the rate at which it's magnitude and angle are changing have leveled off, more or less moving in a a tight range. think of summer heat waves or winter cold spells. temperatures are at seasonal extremes but highs are not going higher, or lower. each day the temperature starts at the high and ends near the high. yes, it's a hot market but will (or can) it get any hotter is the question. economic data and earnings reports released this week seem to have been met with a lukewarm reception. nothing has sparked major action one way or another to change much, although the S&P 500 is up +1.54% for the week due to one days gains.

since geodesic parameter rates of change have flat lined, i contend any catalyst that has gotten us this far up has run dry. unless payroll reports beat economists estimates, the index may be in a position to rollover.

disclosure: so far this week i have allowed the ratio of my pair to float starting monday with 60:40 biased to SSO. to date, my ratio is 60:40 biased to SSO. so as you can see not much movement this week one way or another. i did add to my position tuesday & today at the running ratio at the time of the purchase. i'm expecting a sell-off tomorrow ahead of fridays payroll report. tomorrow i will gradually adjust the ratio to 50:50 by purchasing shares of SDS to finish the day @ 50:50.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - August 4, 2009

2009-08-04T22:55:00.002-04:00

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-20090804-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

not much changed today with the S&P 500 index or the geodesic model. the only take away was that the index started the day reasonably on the downside and managed to eek out a +0.30% finish. buyers maintained the S&P 500 above the 1000 mark for the second day in a row.

no question this market is on a tear. the lull in the activity today was likely an opportunity for some to get in the market who have not been able to yet while the bulls were taking a rest. the model indicators say this is the strongest sentiment in scale the market has seen up or down in several years. the rapid rate at which we got here has leveled off a bit but the temperature of the market is still boiling, so to speak. no indications this will significantly change for the foreseeable future.

disclosure: i am currently 60% SSO & 40% SDS. for the remainder of the week, i plan to let the pair naturally respond (adjust) to the market without forcing a changes to weights. the pair weights will adjust on their own. however, like today, i'll take some opportunities to add to the pair using the weights at the time of purchase. for example, if the weighting is 63% SSO & 37% SDS, i will buy shares of both ETFs at that weights.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - August 3, 2009

2009-08-03T20:50:00.002-04:00

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-20090803-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

well, based on my SDS-SSO geodesic model, the S&P 500 index appears to be "lost in space" and officially un-tethered from reality. for the bulls, this is a good thing.

the geodesic parameters last week extended their positions well beyond it's most recent group of parameters. the yellow squares are the parameters coordinates over the last 15 trading days. the right most yellow pt corresponds to the coordinates as of EOD august 3, 2009. see below.

the next chart plots the daily rates of change of the geodesic parameters. the slowing arc-length velocity seen above is confirmed by this data. very fast rates of change seen last week. if these 2 lines ever cross, that will be the models indicator that market sentiment has changed. in conjunction with this monday (aug-3-2009) mornings run up in the market, it is unlikely sentiment will be changing any time soon.

finally, the scatter plot of the coordinates below are showing what i call "non-conformal plastic flow" or hysteresis. though the rates slowed down, they did not change along the same linear path as previous coordinates. this behavior may be indicative of how frothy the index has become. other than that, the full implications of this behavior is currently not known.

disclosures: i started last week at 65% SSO & 35% SDS and i gradually changed the weightings so as to finish the week at 60% SSO & 40% SDS. this was a forced response to market changes. for the rest of this week, i plan to let the pair auto-adjust their weights. as long as the RSI of SSO stays > RSI of SDS, the pair weighting will become more biased to SSO and increase in value. i may put more money to work periodically at whatever weights the pair is at the time of the purchase. this should have little to no influence on their pairs "natural response" to the market changes.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 30, 2009

2009-07-30T18:15:00.002-04:00

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-20090730-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

despite the late day small bear raid, the S&P 500 index continues to demonstrate there is an unusual amount of interest on the sidelines in buying equities. funds & fund managers who haven't gotten back into the market since the march-2009 lows are starting to feel heat for not participating. how long this will last is anyones guess. based on model parameters, the index looks like it ready to unleash a buch of pent up demand.

having said that, traders must maintain caution and it's still prudent to maintain a descent reserve of cash. for our purposes i still submit that 30% cash is safe and aggressive enough for aggressive model users. the market as a whole has to clear the Q2 GDP hurdle at 08:30 EST. if the report does not show that the rate of economic contraction has not significantly slowed or better stopped contracting altogether, the market is likely to take a dive. if the report is favorable, look for continued momentum to the upside for several weeks.

the market is still not trading on financial business fundamentals. earnings are in the tank and revenues are more scarce. however at this point it's all about the perception that the economy is poised for a recovery not too far in the future. so it appears the market is trading on hopes and dreams. it is what it is. that's why it's prudent to have a hedge on and cash ready to be deployed. patience is the key. trying to get ahead of the market could put you in a perilous predicament. the best strategy with this system is to be conservative and let the market decide who wins.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Alert - July 30, 2009

2009-07-30T11:03:00.002-04:00

Dear Blogger,
money flow going into the S&P 500 has picked up considerably over the last week or so.  even when the index had leveled off a few days here, money flow still increased.

what i believe we are seeing today is pent up demand to buy equities busting through their restraints.  a lot of money not previously in market is now pouring in and pushing the index much higher.

expect this rage of money flow into the S&P 500 for several weeks with a few breathers like we had this week.  i don't believe the economy is this much better, so anticipate there will be a reversal later in the year.  for now, enjoy the ride.

pairs traders with conservative dispositions can still be rewarded.  as i have been indicating in my updates, a 50:50 trade put on even today will still increase in value as long as SSO RSI is greater than SDS which it is at this moment.  if not i will do my best to send out a timeley alert.

let the pair self adjust and drift upward.  when your comfortable add a little more to SSO as frequently as freasible for trade cost considerations.  you too will enjoy the ride up.  keep a close eye on trade update commentarys and the data published in the spreadsheet.

cheers!

best regards,
mike james

Managing Member
Equity Informatics,LLC.
phone: 302-220-3864

SDS-SSO Model Update - July 29, 2009

2009-07-29T22:20:00.003-04:00

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-20090729-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

today the S&P 500 index closed down slightly from the previous close for the 3rd day in a row. as i'll show below, the magnitudes of the SDS-SSO geodesic parameters are still very high and still increasing but their rate of change reversed sign (direction) for the first time in about 10 trading days. this is NOT an indication of market direction change, but shows the rate of growth in the index has slowed. when the parameters rates of change cross, then we have a market direction change.

llook at the velocity of vector-c (denoted diff-c) for example below. at the far right, you'll see a slight dip in the rate of change. market directions changes do not happen over night, but to walk a mile you have to take the first step. in order to signal a market direction change, diff-c would have to cross the x-axis. that's quite a ways down yet from here.

the chart of both geodesic parameter rates of change shows the same thing. the data above in blue is the exact some data below shown in magenta. on an absolute scale, theta sees the largest rates of change.

but the geodesic chart itself shows the coordinates extending further out on the curve, but at a slower rate mind you. the last yellow dot is where the parameters coordinates are today. the amount of arc-length traveled per day is still very high and needs to come in a lot more if this will be a credible pull-back in early stage of development.

my suggestion has been since monday to re-balance pairs trades to 50:50 and let it drift around for a few days until the market sorts itself out. no need to keep re-balancing to 50:50 if you've done it already. let the market decide who the winner will be and your pairs trade will bias itself in that direction. while it does this, the value of the pair will ultimately increase as the bias will have the higher RSI. if this does not materialize i will indicate so in a daily update or alert.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 28, 2009

2009-07-28T21:40:00.005-04:00

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-20090728-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

as subscribers will see, just about every metric & parameter i keep track of in the model has maxed out or is about to max out. from an EOD perspective, it looks like the S&P 500 index is taking a breather from the now storied meteoric rise of 2009. one of the only clues we have we are taking a slight breather is a flattening off of the index & an ever so slightly dip in the price in SSO. another new metric i've introduced is a measure of relative velocity between the rates of change of the 2 geodesic parameters, diif-c & diff-theta. levels in relative velocity is just below, magnitude-wise, the low of the october crash of 2008.

here are some chants. the chart below is the comparison of the RSI of SDS & SSO. you can see the peaks, top & bottom, have curlled in some.

the next chart is the new measure of relative velocity changes of diff-c & diff-theta. the last time the value of this metric was extended this far was during the october-november crash of 2008.

one must ask, how far can this rally go? the only obvious answer is as far as it wants to. markets are not bound by measures as much as they are bound by sentiment. measures only say what sentiment was yesterday. to be on the conservative side with this hedge or trade, set you're pairs trade as close to 50:50 as possible and just let it drift from there a while. typiclally the value of the portfolio will be biased to whichever ETF has the highest RSI for a given day. while doing this you won't have to worry for a few days about being right or wrong with this hedge. but the trades are there already if the market decides to blast off again or rapidly change directions. stay cool and please have some cash on the sidelines.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 27, 2009

2009-07-27T20:35:00.002-04:00

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-20090727-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

the S&P 500 index waffled all over, albeit a relatively small range, to end up positive 0.3% for the day. there a cool-down may be on the near-term horizon. diff-theta & diff-c appear to be leveling off as well as the amplitude of vector-c. but don't under-estimate this market to move upward with incredible momentum. please make sure to ready the commentary for July 24, 2009. it would not hurt to go 50:50 for a few days while the market sorts itself out. currently SSO has higher RSI and changes throughout the day.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 24, 2009

2009-07-26T21:55:00.003-04:00

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-20090724-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

WARNING!!!!.....WARNING!!!!

the SDS-SSO pairs trade model is topping out all kinds of parameter highs and some on the verge of being topped out. if we continue on this trajectory unabated, we're likely to become un-tethered to reality and we'll be "lost in space."

here are some charts. the chart below entitled chart_geodesic_SDS-SSO_20090724 is a snapshot of where equilibrium is along the geodesic. the different colors represent different time series of data. the purple is the path the parameter coordinates carved out from about mar-9-09 to 6-15-09. march 9 started a the top right most purple dot, traced down to the apex of the curve and down symmetrically along the lower portion of the curve. june 15 is the last lower rightmost purple dot. then the blue dots represent the pull-back after june 15 to about july 15 which is masked by the leftmost yellow dot. that's when the market rallied and re-traced in yellow dots all the way back to where june 15 was in less than 1/2 the time the pull-back took. the spread of the points shows just how strong the upward motion in the S&P 500 index has been in the last 10 days.

the chart below entitled chart_geodesic_parameters_rates_of_changes_20090724 provides the indicator when the index has changed direction that is from bullish to bearish & bearish to bullish. the crossovers at the x-axis are the indicators to change market sentiment. judgment and other techniques can tell you about the same thing. the trouble with most any system is being able to predict to a high level of certainty what the market will do next. but crossovers are conservative and are generally correct. another problem here is if the parameters cross each other, wiggle and cross each other again in short periods of time. this happened recently and back in january & february for certain. so crossovers can also be considered as no-man's land and the closer the parameters come to crossing each other, the less certainty of knowing short-term future market direction. things to be aware of as with any models boundaries.

the chart below entitled chart_geodesic_diff-theta_vs_diff-c_20090724 is a scatter plot (just like the geodesic plot is a scatter plot of it's parameters) of the daily rate of change of the geodesic parameters data plotted w.r.t. each others. it's the same data above plotted independent of time. the color notation time-series-wise is the exact same as in the geodesic chart. the yellow dots started in the 2nd quadrant and followed a line basically through zero and are now extended way out in the 4th quadrant. besides the apparently linearity of the data, notice how much farther the yellow data extended along the x & y axis versus the farthest point of blue data indicating how much leverage has been put in the market.

the final chart for this commentary entitled chart_vector-c_rates_of_change_20090724 is a time series plot of diff c defined as daily rate of change of geodesic parameter vector-c and it's daily rate of change defined as diff diif c. theta is the other geodesic parameter that has been scaled down for relative comparison. the data shows the weights of SDS & SSO are changing at there fastest rate going all the way back to late august-08. this rally has the october-november crash beat in magnitude and the march crash. note that highs of this nature have been followed by steep reversals. also note all the reverberation during october-november-08 a better part of 2 months to settle down. the february-march-09 event was less noisy but took about 2 months to settle down. since around early may-09, almost 3 months ago, events have been very erratic and building up intensity from peak to peak. quite a perilous time for buy & hold investors in my opinion.

disclosures: i am currently 65% SSO & 35% SDS in all my pair trading accounts. will start selling SSO gradually from here until ratio is 50:50.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 23, 2009

2009-07-23T22:05:00.002-04:00

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-20090723-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.

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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

well, needless to say S&P 500 index is on a rocket somewhere. in my opinion, the index is at the outer limits and about ready to enter the twilight zone.

ok, enough subjective talk. the S&P 500 closed up 2.45%, the highest of the 3 major averages for today. S&P 500 RSI broke 70 for the first since as far as i can see. the amplitude of vector-c is virtually one trading day away from maxing out the high in the middle of june-09. diff c, the daily rate of change of the amplitude of vector-c has maxed out levels going past all the volatility in the last 12 months. the daily scatter plot coordinate of diff c vs diff theta is way out range in the 4th quandrant. so get ready for the first case of instant teleportation to the other side of the universe or this baby is going down.

either way, i am keeping my pairs trade as close to 50:50 as possible. i've let the ratio drift to 47 SDS & 53 SSO & then re-balancing back to 50:50 by buying the weakest ETF. this keeps your gains safe and if there is a sudden ride down, probability is higher that SDS will change faster than SSO. this means the pair will still increase in value. that's why it's so important to keep plenty of cash available. be very careful out there!

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 22, 2009

2009-07-22T22:55:00.005-04:00

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-20090722-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 wavering day for the S&P 500 index. the index closed essentially unchanged down 0.05% for the day. the index has taken a breather over the last two trading days from it's historic 6 or 7 day meteoric rise. momentum upward measured by arc-length traveled along the geodesic has not abated which indicates lag in the model from using 12 day moving averages in rices changes. however acceleration of the geodesic parameters coordinates has leveled off. as stated in yesterday's commentary, there appears to be more room for upward movement in the S&P 500 but margin maybe shrinking faster than anticipated yesterday.

for very conservative hedgers, this is probably a good time to sell SSO or re-balance your portfolio to 50:50 before the re-balance signal is indicated. it is no recommended any longer for conservative users of this pairs trade strategy to re-balance pairs to the neutral weights computed by the model. reason being those weights are changing on a daily basis and can actually make portfolios appear unstable. isn't that's what the neutral weighted data was for? initially that was the conservative hedge strategy prior to the development of the geodesic characterization.

before or after a market direction changes are called, typically the numerator of the fraction grows faster than the denominator. as a result the value of the pair increases as the geodesic coordinates move in the opposite direction along the path. gains are smaller this way, but much more forgiving if the market waffles before taking a decided direction.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 21, 2009

2009-07-21T21:35:00.003-04:00

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-20090721-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.

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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 weaved & bobbed to close up 0.36%. the index has not had this much bullish momentum since june-01-09 measured by the daily difference between today's & yesterday's diff-c geodesic values. this delta value measures the distance (arc length) traveled along the geodesic path in one day.

as a matter of academics, this illustrates the non-linear relationship between price momentum changes and path momentum changes. we're on the portion of the geodesic path where small changes in price are amplified in terms of distance traveled along the geodesic. this relationship changes as the geodesic coordinates are moving on the path closer to the apex. around the apex, price changes approach a 1:1 relationship with daily arch-length changes. the reason for this non-linearity is the long-term compounding effects in the ETFs. compounding effects do not cancel each out when trading leveraged ETFs in a pairs trade.

now having said all this, the model indicates there's more room for the index to go higher. there's a good likely hood the index will go higher judging the sentiment over earnings. clearly there are always potholes in the road but there is room to go higher. watch levels in the amplitude of vector-c. current level is measured at 0.7446. it has room to go to 0.7600 before i'll raise the yellow flags. assuming current rates of momentum, that time frame may be 7 - 10 trading away from today.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 20, 2009

2009-07-20T22:25:00.003-04:00

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-20090720-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

the S&P 500 index continued it's upward momentum by closing up 1.14% & now closing at it's highest levels since Q4 2008. the amount of arc-length equilibrium covers along the geodesic path per day is increasing day by day. the model is now indicating a strengthening bullish bias to SSO.

remember, equilibrium is the point at which the weightings of SDS & SSO are adjusted to maintain a delta neutral as compounding & slippage of the ETFs change over a 12 day trading period of time. the weightings account for the uneven ETF time rates of price change over the said period of time.

the geodesic is a symmetric graphical representation of 2 parameters associated with the change in weights. 2 parameters are quantified from the data and defined as the geodesic parameters. those two parameters for this model are the amplitude of vector-c, sometimes denoted as ||vector-c||, and the angle theta.

in classical mechanics, geodesics are useful characterizations of systems which are multi-variable in nature where these variables change at varying rates. the geodesic then can be thought of as the path the variables follow that stipulates the least amount of change per variable to maintain equilibrium if the system is pertured. in our case, the 2 variables are the weights of SDS & SSO in a pairs trade and their corresponding time rates of change in price.

once we have this data, system equilibrium is defined to move along a specific path or surface. in our case, the path is curved line in the shape of a parabola shape which is symmetrical about an axis of rotation; again in our case the x-axis. since we have acquired enough data of closing ETF prices over several years, the path of the geodesic is empirically derived without the need to solve partial differential equations.

another useful bit of information is knowing the time rate of change of the geodesic parameters. when plotted against time, this data is very useful to indicate when the system is changing direction and at what rate. when those 2 rates meet each other, they will always meet at the x-axis. this is because the system parameters have the mathematical roots. in addition, when these parameters are plotted in a scatter plot (which is all the geodesic curve is), the data reveals 4 quadrants which indicates more clearly what the system is doing as rates change. so there is another level of refinement of understanding the behavior of the system using geodesic data.

the bullish bias is strengthening because the amount of arc-length traveled per day along the geodesic is increasing. see the chart entitled chart_vector-c_rates_of_change_20090720 and the variable denoted as diff c. this is the variable to watch, in addition to diff theta, that measures the increase or decrease in momentum, in our case the momentum of the S&P 500 index. this is not to be confused with other technical analysis momentum indicators. however, they should point in the same general direction.

keep a reason amount of cash on the sidelines in case market sentiment suddenly changes. besides selling, the additional cash can be used to change your pair trade bias to help mitigate loss of capital.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 17, 2009

2009-07-17T22:40:00.002-04:00

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-20090717-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

on better than expected Q2 earnings reports from banks & better than expected outlooks for 2009 reporting from tech companies, markets exploded upward this week for one of the best 1 week performances for the year. the S&P 500 index was a beneficiary closing up 6.97% for the week.

with regard to the SDS-SSO S&P 500 index model, there's a couple of things to be watchful of. the 12 day MAs of the standard deviations for SDS & SSO are still very low relative to levels during index breakouts up or down over the last 12 - 18 months . what this means to me is both ETFs are leveled off in a trading range. see the 12 DMA STDEV chart in the spreadsheet. if we're going to breakout up or down, i expect to see these numbers to jump up.

another thing to take note of is a right shoulder of a head-n-shoulders pattern is forming in the chart of vector-c amplititude vs. time. historically, these patterns have been muted but discernible. the left shoulder formed 2 months ago and the new right shoulder may be getting ready to top out if it hasn't already. remember, data to determine the geodesic coordinates and so forth are based on 12 DMAs. the model will always have a little lag relative to actual timing of events.

finally, the geodesic parameter chart and the time rate of change of the geodesic parameters scatter plot are not in breakout mode as yet. they are still within recent levels since about the second week in june. therefore the model still indicates a mild bullish bias to SSO.

the geodesic coordinates are still moving in a bullish direction at an even pace but their location is nowhere near the end of the path from just a few weeks ago. considering the S&P 500 index levels are near the highs of the year, you have to wonder whether this recent run up is in a right shoulder formation process (i.e. about to go down) or we are just at the beginning of a new move upwards. the next 7 - 10 trading days will be very telling.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 16, 2009

2009-07-16T21:35:00.005-04:00

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-20090716-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

the S&P 500 index ran flat from the open to about 1:30 PM EST and continued it's rapid pace upward. at the EOD, model data reflected this movement by continuing the mild bullish bias started yesterday.

geodesic coordinates are moving toward the tail of the path in a fairly orderly fashion. data coordinates plotted in the diff-theta vs diff-c scatter plot established it's second point in this new series of data in the 4th quadrant. yesterday i expressed some concern with that, but this is actually consistent with the motion illustrated in the geodesic plot. as the index advances, the amplitude of vector-c increase while the angle is decreasing in this part of the cycle. i'll have to break this behavior down further in special commentary all it's own.

expect the S&P 500 index to advance again tomorrow. how long this advance continues is not known. however, look at the chart of the amplitude of vector-c. looks like a right shoulder emerging, doesn't it? not exactly symmetrical, but that's what it looks like. this indicates to me we're going against a larger overall trend. this could potentially persist for a while. but it's just putting the inevitable further down the road. at the same time, this could be a reflection of a much larger run up in the index than anticipated. we'll see.

for now, it's probably safe for a while to be biased to SSO in your pairs trade. safety also precludes keeping a reasonable amount of cash on the side lines. around 1/3 of the overall holding is probably a good number at this point in the cycle. if the advance continues to explode, it's reasonable to say a lower percentage of cash is natural. of course that decision is always yours to make.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 15, 2009

2009-07-15T23:10:00.004-04:00

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-20090715-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

as expected with the explosive move up of the S&P 500 index, the model now indicates a mild bullish bias. the erratic behavior of the index over the last 10 trading days or so has been mirrored by the model with several flip-flop market direction change indications. this is usually a sign of indecisive interest in the market. are we going up or down? that kind of thing. though the market exploded higher today, it's still unclear to me how many legs this upswing has. but for now, the trend is certainly upward.

the yellow square dots in the geodesic charts represents parameter coordinate movement during this upward motion in the index. the direction of movement is away from the apex out to the end of the lower portion of the path. the scatter plot of the parameters 1st order time rate of change shows a coordinate move into the 4th quandrant which means the amplitude of the wave change is positive but angular velocity is negative. the full implication of this is not clear other than the run up in the index has slightly different characteristics. apparently there are forces pulling the index to equilbrium (back toward the apex) or this is a transient effect of the change in market direction change. it's more like the latter i fell but we'll see.

hopefully readers have some cash to put to work incase this optimism becomes euphoric. it's not clear if the index will pop tomorrow as high as it did today or at all. but more key earnings reports in the next few days are likely to beat wall street forecasts.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 14, 2009

2009-07-14T21:55:00.002-04:00

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-20090714-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

even with the tiny move up in the S&P 500 index today, the model indicator switch back to a weak bearish bias. but i don't think it will vacillate much longer. since june 16th the market has been more bearish than bullish. when i look at the RSI plots of SDS & SSO, the indication now in retrospect has been a directionless market. sentiment on the street is rapidly changing indicated by the VIX dropping from a high of 33 to 25.02 in 5 trading days. that's roughly a 32% change.

i have added a new time series on the geodesic chart starting with coordinates from today's data. the new time series data is annotated in yellow squares. see below.

tomorrow i will update the cooresponding scatter plot of the paramters rates of change to coincide with this new time series and include it in the spreadsheet from here out.

unlike the last time few times when the direction bias changed for a day and flipped right back, my sense is the market is about to make a fast move up in the short-term. this judgment has more to do with how earnings results have been beating to the upside. even though reporting just got started, i don't see anything at this point that will change the current optimism. so consider curtailing (not eliminating) whatever hedges you have to the downside. the model will have to catch-up with the market. watch the time series on the above chart progress in future updates.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 13, 2009

2009-07-13T19:35:00.003-04:00

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-20090713-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

with the 2.5% run-up in the S&P 500 index today, the models geodesic parameters crossed over which is an indication of market direction change. the RSI indicator plot in the spreadsheet shows a similar confirmation in market direction change. lastly, coordinates in a scatter plot (not included in the spreadsheet but included below) of the geodesic parameters time rate of change shows a change in quandrants, another indication of market direction change. therefore the model is indicating a weak bullish bias in the S&P 500.

the coordinates that moved into the 4th quadrant are shown as a blue asterisk. there is one other point there from 7-1-09 when the index popped but went back down.

having said all that, the S&P 500 index moved in lock-step with a pattern that has repeated several times since the end of apr-2009. observe the following dates in the chart below: 4-20-09, 5-26-09, 6-24-09, 7-13-09

during expiration week, the S&P 500 index began new rallys. and each time the rally was less intense and shorter in duration. the question is will the pop in the index today repeat this pattern, less intense and shorter in duration. if so, this rally may last 3 - 5 trading days max.

therefore consider building a small position in SDS over the next few days. stop accumulating if the price drops below $54.7 - $56.0 and then hold. if the pattern holds, you should be able to unload the hedge in a week or 2 for a small gain.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 10, 2009

2009-07-11T17:45:00.002-04:00

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-20090710-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

again, very little change in EOD performance in the S&P 500 index. model indicators are still bearish on the index. stay cautious and keep accumulating as much cash as possible. the index will not keep going sideways like this forever.

i have a few comments on the overall state of the S&P 500 index according the model. the model shows that the index is still "over-wound" to the upside and has more room to go down than up. sure, anything is possible. in my opinion, going up from here would require a huge amount of conviction that businesses in the index will not only beat but exceedingly beat their projected Q2 earnings and outlook would have to be nothing but rosy. secondly, global demand for products and services would have to be at all time highs in order to provide the index additional potential to run up another 20% or more from here over the next 4 - 6 weeks.

the index is "over-wound" from this perspective. just like the natural seasons we experience on earth, economic, business & indexes have defined seasons as well. those seasons are not as regular and smooth as the earths, but they exist. no matter how long an economic cycle stays in a particular season, the economy must follow a series of defined seasons in the same order in order to stay viable. the SDS-SSO geodesic is a reflection of what season the S&P 500 index is in and what season is coming next.

the geodesic coordinates seem to be saying to me the S&P 500 index is an early stage of decline as it is retracing it's path back toward the other extreme. the assumptions i have made in constructing the geodesic model for the S&P 500 are based upon the premise that seasonal index changes maintain continuity along the geodesic path independent of time variations. in other words, the model allows for small retracements along the geodesic but overall motion is harmonic in nature and in order.

there are no set rules on how long the index stays in a season, but once it's established a new season it must precess to the next ordered season no matter how long it takes. if the S&P 500 model geodesic coordinates had already passed back through it's apex and spent a meaningful amount of time ending a season on the otherside of the geodesic and was retracing back the other way, then yeah i'd say we're bound to see significant upside movement in the S&P 500 index.

so, until the geodesic coordinates trace the path to the other side there will inevitably be from this point more down motion in the S&P 500 index than up for quite some time.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 9, 2009

2009-07-10T00:15:00.002-04:00

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

SDS-SSO Model Update - July 8, 2009

2009-07-09T09:10:00.003-04:00

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-20090708_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

the S&P 500 closed down but way off it's lows. the market rallied in the last 2 hrs of the trading day. as i am writing this, the index is poised to open higher perhaps on earnings news.

despite the small reversal yesterday and possible rally today, the model is still indicating a bearish tone in the S&P 500. however, i'll be watching the geodesic parameters 1st order time rates of change for the possibility of a more sustained rally.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 7, 2009

2009-07-07T21:10:00.004-04:00

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-20090707_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

the rate of selling is picking up steam in the S&P 500. the most current geodesic coordinates took a heft jump back toward the apex of the path. conservative minded hedgers ought consider adjusting their SDS-SSO pair to neutral weights or slightly biased to SDS and let the portfolio adjust gains itself. more aggressive hedging would be setting a much higher pair weight to SDS. even conservatively hedged pairs will pickup growth as the selling progresses. add money as you go by buying the pair on days the index rallies. buy the pair at whatever weight the pair has adjusted itself to, not to neutral.

as mentioned already, keep in mind while you do this, the weighting of SDS in your pair will tend to increase on it's own widening the spread to neutral as the index declines. neutral weightings will go the opposite way which reflects a higher potential building up in your pair. just remember, higher potential means higher risk. but with this model, you have a way of measuring and regulating the risk to your tolerance level.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 6, 2009

2009-07-06T22:35:00.003-04:00

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-20090706_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

ultimately, the S&P 500 index changed very little from EOD thursday to the close today. but the markets rallied from the gap lower at the open. in addition, the index is lingering around a resistance level of about 893. so the market appears to be at a cross-roads as to which way it wants to go.

all the indicators i track in the model are still BEARISH. also, geodesic coordinates have not passed through the apex like i would expect for a meaningful correction to have taken place. so based on the my analysis and intrepretation of the analysis, the S&P 500 index has a ways further downward before the rates of change of both ETFs are roughly the same. this occurs at the apex of the geodesic. i don't expect any anomolies at this point because even though the rates of change are not the same, the sum of the forces between the 2 ETFs is still zero.

so we should see before the end of the week whether buys will lift the S&P 500 index out a ditch or the ditch turns out to be a sink hole.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 2, 2009

2009-07-05T20:20:00.003-04:00

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-20090702_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

the 1st order rate of change of the SDS-SSO geodesic parameters bounced off each other at the x-axis of their plot below:

typically the cross overs are coincident & indicate a market direction change. prior to the bounce, the parameters were indicating a decline in the S&P 500 index. now that they bounced back along the x-axis where they were, the parameters are still indicating bearishness in the S&P 500 index.

the SDS-SSO geodesic graph continues to show the neutral weighted pair is shifting the geodesic coordinates back toward the apex of the geodesic path. see below

the blue series of plotted data points represent the motion of the neutral weights from 6-16-09 which is a local top in the S&P 500 to last thursday 7-2-09. 6-16-09 is represented by the blue point at the right most point of the bottom geodesic arc. subsequent points in time are moving backup up the arc toward the apex. 7-2-09 is represented by the left most blue dot on the bottom arc.

notice vertical line at ||c|| = 0.74 would intersect the top geodesic arc at it's extreme. that point represents the S&P 500 at 3-9-09. so there's a ways to go before we hit a new bottom. because market's don't move up or down in a straight line, we can't extrapolate when or at what level the next bottom will be. if we did extrapolate the timing, the new low could be during the month of september or october '09.

predicting events & their timing is NOT the point of this model or analysis. stay consistent with your investment strategy and use the data in the spreadsheet to guide your hedges.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - July 1, 2009

2009-07-01T22:25:00.004-04:00

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-20090701_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

going strictly by the numbers, the model is indicating a reversal back toward a bullish position. RSI favors SSO & the geodesic parmeters 1st order rates of change have crossed each at the x-axis. just like most other technical indicators, the SDS-SSO geodesic shows where we've been and provides a sense of trend in the very short-term. This indicator does not indicate overbought or oversold conditions like MACD or other well-known stoicastic indicators. having said that, the coordinates on the geodesic are likely to change direction within 3 - 5 trading days from now.

while using a scatter plot of the geodesic paramters 1st order rates of change data, i'm finding the data is changing linearly with respect to each other. i will be studying this data to determine what the indication may be when these changes become non-linear. the behavior of these swings along the geodesic is like a non-linear pendulum. in the case of a real pendulum, a weight is attached to a wire of rod of some material that has a very high spring constant. as far as the weight is concerned, the distance from the weight & center of rotation never change, nor the mass of the weight.

in our case we have a pendulum which has a variable mass attached to a spring with a variable spring constant. the motion of a system (with respect to time) is non-linear and very erractic. the motion of the mass would be swinging and bobbing with no fixed frequency. such a system still must follow the laws of physics. the solution to the equations of motion are much more complex, however. the motion of the whole system fortunately follows along a geodesic with some degree of symmetry.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 29, 2009

2009-06-29T22:20:00.002-04:00

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-20090629_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

in the last few trading days, the S&P 500 has managed to drift back up almost to levels prior to last monday's sell off. the rate of change of vector c has all but ceased meaning the S&P 500 in the short-term has slowed it's pace downward considerably. a conservative tweak to maintaining neutral would be to slightly increase the weight of SSO from it's neutral waiting. of course this would mean lowering SDS proportionally. all indicators except the RSI indicator are still signaling a slowdown in the S&P. so be prepared for erratic behavior for the remainder of the trading week.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 25, 2009

2009-06-25T22:20:00.002-04:00

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-20090625_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

well, the bulls came out in full force today creating sort of a short squeeze in my opinion. just remember this is near the end of the quarter and stranger things have happened around this period of the business cycle.

i want to point out two things. 1) there's been a pattern of toward the end of the last 3 months where things got bearish looking and then out of the wood works buyers start lifting the markets. 2) the relative strength indexes have criss-crossed suggesting a bias toward SSO in spite of the remaining model indicators looking bearish. if the buying is for real, these will begin to turn as well.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Alert - June 25, 2009

2009-06-25T12:26:00.002-04:00

Dear Blogger,
the markets are poised to break out to the upside.  this fits a pattern every 4 weeks for the last 3 months.  apparently there are still lots of money on the sidelines. seemingly no firm wants to show clients they have a lot of money on the sidelines doing nothing.  one day this false realism will stop.

best regards,
mike james



Managing Member
Equity Informatics,LLC.
phone: 302-220-3864

SDS-SSO Model Update - June 24, 2009

2009-06-24T21:25:00.003-04:00

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-20090624_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

though a little volatility during the day, today markets for the most part traded sideways. only the Nasdaq Composite closed significantly higher, however well off it's highs with heavy selling at the end of the day.

S&P 500 model indicators are still pointing to an SDS bias. the geodesic coordinates are continuing to march back toward the apex of the curve. watch for potential heavy selling in the next two trading days. markets are sitting at resistance levels from a month ago.

to say the S&P 500 is still headed down would require breaking below the resistance. if not, there could be a little bounce higher but not to the highs we've had around 950. perhaps a bounce to the 935 level and then start a new leg down in the market 3 - 4 weeks from now as Q2 reports start surfacing.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 23, 2009

2009-06-23T21:20:00.002-04:00

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-20090623_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

the S&P 500 index did not change much from yesterday to today. the selling did not stop due to any fundamental change in the market. perhaps sellers are just waiting for the FOMC to announce their monetary & economic outlook at the close of tomorrows meeting at 2PM EST. anything is possible but i don't see anything the fed could say that will stop sellers from taking profits before the end of the quarter (a week from tomorrow). then i suspect we could sideways for a while till earnings reports start kicking in toward the second & third week in july. that's where the selling may stop or accelerate. we'll see. the model for time being still remains biased to SDS.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 22, 2009

2009-06-22T21:35:00.002-04:00

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-20090622_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

we have reached a point where i'm comfortable to say the model is indicating a re-balance for neutral traded pairs only and a polarity change with a bias toward SDS for moderate to ultra performance (higher risk) portfolio scenarios. if your SDS-SSO pair is already biased to SDS above the neutral point, your already positioned for moderate or ultra performance. the degree to which you are bias SDS is a personal decision based on your tolerance for risk.

because the geodesic analysis is based soley on the neutral pair weights i derive, it will take precedence over the PID-7 algorithm for re-balance & polarity indications. therefore performance charts and data will reflect decisions to weight the pairs based on geodesic optimization. i will include the old PID-7 chart indicators in the spreadsheet for reference for a while. the PID-7 algorithms are approximations for what the geodesic gives us. the geodesic is much more precise and less dependent on judgement.

today the S&P 500 index rolled over like we haven't seen in a while. no telling how long or how intense the rollover will be. i'm working on some analytics based on using the geodesic to hopefully give us a better feel for answers to how long or how intense. so while the S&P 500 stays in this cooling off phase, oppurtunities lie in buying on the rallies.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Alert - June 22, 2009

2009-06-22T14:17:00.002-04:00

Dear Blogger,
with the market taking breather from rallying for the last 3 months, the strategy i will follow is likely to buy the SDS-SSO pair on days when the market rallies.  whichever particular weighting you choose to position your pair based on your tolerance for risk, overweight SDS.  when the market rallies during an extended pullback, you will buy SDS cheaper.  if you don't want to wait for the day to buy, perhaps overweighting SDS more so and schedule purchases when cash is available is a reason approach.

my current position is 70% SDS & 30% SSO.  the pair will grow without purchasing which means the weighting of SDS will increase as the pullback extends.  this is a conservative approach at this point because i'm not ultra weighted.  just remember, as the price of SDS increases, the neutral pair weighting for SDS will decrease.  i reference the weightings data in the spreadsheet.

here's an illustration, visualize ascending a ladder.  each step you take up, the further you are from ground or equilibrium.  risk rises but so does the reward.  keep that in mind. this approach is satisfying when i maintain a good amount of cash on the sidelines in case i need to take profits and reverse direction.  the cash is like someone holding my ladder for saftey as i ascend in risk.  this strategy works in reverse, as we have seen, during extended rallies.

best regards,
mike james

Managing Member
Equity Informatics,LLC.
phone: 302-220-3864

SDS-SSO Model Update - June 19, 2009

2009-06-21T23:00:00.002-04:00

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-20090619_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

a temporary cooling off period for the markets seems to be underway. at this point it doesn't look like the markets are posed to correct like a runaway train to. but the market has a ways to go to equilibrium. equilibrium is the coordinated of the apex of the geodesic. we're a ways from that point. we know the market will eventually get back to that point, it's just a matter of when now.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 18, 2009

2009-06-18T23:10:00.002-04:00

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-20090618_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

the U.S. stock markets in general are clearly showing signs of slowing down. even with today's bump up in the dow & S&P, the markets are very sluggish. the nasdaq closed lower and the other two indicies rolled over at the end of the day and closed well off their highs.

however, once again, stay cautious and vigilant. all kinds of equity swap contracts and what not expire tomorrow. if there's going to be a major change in volatility, it will be tomorrow. all the major indicators i track in the spreadsheet are saying the S&P 500 is in the early phases of a slowdown except the PID-7 neutral re-balanced indicator, though this indicator is sloped in that direction. but i don't think the slow day will last as long as the last one from early feb to mid march. the standard deviations i track in the price of the ETFs really haven't bouced around recently as prior to the last slow down. that's a hunch, we'll see what happens.

after seeing panic buying this time last month and the end of april, i'm not discounting a stealth buying rally starting all over again tomorrow. this time around i would have to conceede the probability of that happening is not as high this time. for one reason, the primary indicators have stayed in slowdown territory for 3 days now. vector c has shrunk 3 days in a row, diff c & diff theta are still on the other side of the x-axis and the ETF RSI are also at a crossroads.

note that the SDS-SSO geodesic chart has 2 series of data now. the blue series are the geodesic coordinates for the last 3 trading days. they're headed back to the apex and at an increasing rate; a decent "yellow light" a change in market direction is in the offing also given the fact that the lower leg of the geodesic is hyper-extended beyond the upper leg. keep an eye on those coordinates in the updates over the next week of trading.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 17, 2009

2009-06-17T21:15:00.002-04:00

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-20090617_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

today's flat market performance helped helped indicators point more toward a declining S&P 500. but we are still essentially at the same point were a month ago when the S&P 500 index got to these very same levels and then buyers came rushing in like panic buying of the 1st order. i'm not ready to declare a new victory for the bears yet until selling picks up at a greater pace. i still want to see all indicators i track in the confirmation column before declaring a winner.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Alert #2 - June 17, 2009

2009-06-17T14:39:00.002-04:00

Dear Blogger,
i watch the market closely right after 11 am & 2 pm EST as many institutional trades are made.  so far sellers are keeping a lid on upward motion.  very interesting to watch.  but investment banking house trade all throughout the day and can dramatically lift or lower the market in the last 15 minutes of trading.  between now and then we will have a better gauge as to who has the most conviction.

best regards,
mike james

Managing Member
Equity Informatics,LLC.
phone: 302-220-3864

SDS-SSO Model Alert - June 17, 2009

2009-06-17T12:38:00.002-04:00

Dear Blogger,
so far so good on S&P 500 price movement.  still be watchful of a head fake of the kind we've had this time of each month since market lows in march.  the chart of the VIX below illustrates my point.  near the 3rd week of each month the VIX managed to get to hop over it's middle bollinger band and never puch through to the upper end.  right now the VIX just bounced off it's 50 MDA and recoiled downward.  could be another re-peat scenario.  be ready for possible explosive move up.

best regards,
mike james

Managing Member
Equity Informatics,LLC.
phone: 302-220-3864

SDS-SSO Model Update - June 16, 2009

2009-06-16T22:04:00.004-04:00

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-20090616_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

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.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 15, 2009

2009-06-15T22:10:00.002-04:00

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-20090615_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

with today's sell-off, the SDS-SSO indicators are once again pointing to a market direction change. we've had this condition several times since the market lows in mid-march '09. look at the RSI chart. vector c, which is a less prone to false indications, even anticipated a direction change last month around this time. then the buying came back with a vengance.

a few things to keep in mind this time. several large U.S. banks with large TARP contributions from the federal government passed the govt's stress test a month ago and last week recieve OK from the treasury to re-pay their TARP. combine that with the fact that we are roughly 2 weeks away from the end of Q2-2009 and we have a situation ready for earnings window dressing to take place. anticipate the possibility that a market correction of sorts is right around the corner.

the plot of the magnitude/amplitude of vector c is flattening off and note the last point on the geodesic is closer to the previous point which indicates some slowdown in the S&P 500 rate of growth. also look at the chart plotting the rates of changes for the geodesic parameters. the lines are pointed toward each other indicating sluggishness as well. if those line meet, according to the model the event will trigger a prompt to re-bias high beta oriented pair position & re-balance a nuetral pair position if you have any. keep close eye on the commentary this week.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 12, 2009

2009-06-14T22:30:00.001-04:00

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-20090612_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

the parameters of and the geodesic model i defined for SDS-SSO, i believe, characterizes the most optimum indication for re-balancing and re-biasing a viable pairs trade using these 2 ETFs. the PID models have provided decent approximations for the information contained within the geodesic. so going forward, the PID-7 indicator charts will be included for reference and desicions to re-balance and re-bias will be left to looking at the characteristics of the geodesic and the chart plotting the 1st order rate of change of vector c & the angle theta. i will spend more time this week illustrating graphically how i derive these parameters and what they mean for trading. again, the model is not a chrystal ball but it does describe how the system behaves under changing boundary conditions.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 10, 2009

2009-06-10T22:45:00.002-04:00

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-20090610_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.

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Today's Commentary

how elastic is the S&P 500??? how much can it stretch over the shortest period of time before it snaps??? i think we're about to find out over the next week or two. the spread between neutral weights is at it's highest since back to the beginning when backtesting started in mid-summer 2007. the bottom tail of the geodesic is out the farthest and angle deviation the widest. rates of change for vector c & theta are higher than they were at the lows of the market this march.

but notice the standard deviations in ETF prices are quite low compared to other periods of extremes. they are starting to pick up. either the market is in the process of taking off like a jack rabbit or sinking like a lead fishing lure. stay neutral and be ready for the unexpected. whichever way the market starts heading, i think it will be with great momentum.

btw, i'll be out of town tomorrow through friday evening. i will not have an update after the market closes tomorrow. i'll send a double update over the weekend.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 9, 2009

2009-06-09T19:51:00.002-04:00

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-20090609_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

resembling the shape of a comment, the bottom trail of the geodesic grew out more today commencurate with the ever increasing S&P 500 index. i also included yet another chart in the spreadsheet which depicts the 1st & 2nd percent rate of change of vector c. the plot in yellow is a scaled down representation of theta also adjusted to reflect symmetry about the angle of 45 degrees. 45 degrees is the nominal angle associated with neutral weights at 50% for both SDS & SSO.

all the charts show perhaps the obvious at this point, the S&P 500 index has exceeded the magnitude of change since the low compared to the last phase which was downward from late january to march 9th of this year. many bloggers at seekingalpha.com are quite sckeptical, including myself, of the green shoots prognostication going on in the media. my own view is many of the large banks that recieved TARP funds when the credit crissis started have now overbought the market and are ready to start selling to make gains with those funds now that many have gotten the OK from the fed to repay their debt to the public. this may be cynical but it will become very clear what these banks have been doing in the current quarter when they start reporting Q2 earnings in july & august. so the cycle of 2008 continues in my opinion for the remainder of 2009. we'll see.

this is a good time to start raising cash and slowly add to a small neutral pair position as a hedge against potential downside moves - even if they are just a week or two long.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 8, 2009

2009-06-08T20:20:00.004-04:00

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-20090608_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

at this phase in the market cycle, small changes in theta result in larger changes in ||vector c||. looking at the chart, we are at the very tail end (right most pt) of the bottom leg of the plot. the points here are fanning out, sort of what you would expect to see as outliers in a probability plot. these points are infact outliers since the majority points are densely packed together at the apex of the curve.

again, note the symmetry of the plot and how our most recent point is further down the x-axis than any other point in the upper half of the plot. the dates of the data go back to around feb-2008 so today we are most extreme (widest spread) between neutral weights in the model. i will show a similar plot of the DXD-DDM in another commentary which will show there is a little ways to go before maximum spread is achieved.

also, look at the chart plotting diff c & diff theta vs. time. diff c is the percent rate of change of ||vector c|| and diff theta is the percent rate of change of angle theta. keep an eye on when those two plots cross y = 0. they cross the x-axis coincidently and is the point at which the phase shifts directions or we are at the apex of the plot. phase shifts are basically synonomous with polarity changes. consequently there are similarities with this relationship and the PID-7 ultra re-balance indicator. i'll show this in an upcoming commentary.

this is probably a good time to be closer to neutral than otherwise. reason being we are in extreme ranges in neutral weight spreads and a portfolio with neutral weightings will be positioned immediately to benefit from a phase shift or polarity change. a prudent method of doing this is to maintain a small neutral position and let the market tell you when it's time to put more money in portfolio.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 5, 2009

2009-06-07T21:05:00.003-04:00

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-20090605_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

the keyword in this commentary is geodesic. what's a geodesic? given by houghton mifflin a geodesic is "shortest line between two points on any mathematically defined surface." if the surface is a plane, the geodesic between two pts on that plan would be a straight line. if the surface has curvature, then the geodesic between two pts on the surface a curved line. what does this lesson in non-euclidean geometry have to do with SDS & SSO? follow along.

because SDS & SSO are tied to the same index but move proportionally equal in opposite directions (approximately), we would not be wrong to expect there is a simple mathematical relationship between the rates of change between the 2 ETFs. unfortunately, the relationship exists but it is not simple because of tracking errors and compounding of those errors over time.

computation of the neutral weights is the core of the solution to this problem. but there's a lot more to learn from these weights than meets the eye. consider the square of each weight as the magnitude of a vector. then hold each vector at 90 degrees to each other, add them together and resultant is vector c. the magnitude of vector c is the hypotenuse of the right triangle and theta is the defined by arc tangent (neutral wt of sds)^2/(neutral wt of sso)^2. if you plot the ||vector c|| versus theta, you have the geodesic or shortest path along a curved surface. i have included this plot in the spreadsheet.

for every value of theta there is a unique value of vector c but not visa versa. such a plot is called a functional and is consistent with properties of a geodesic. each dot in the plot represents the results at the end of the day. it would not be correct to assume the adjacent dot corresponds to the results of the previous day or the day after in questions. the system may hop past previous values but only along the geodesic. because we are working with 2 variables, the geodesic should be smooth and symmetric. if the system ever breaks off symmetry, we can no longer assume we have neutral weights for the 2 ETFs.

i will illustrate more points regarding vector c and it's relationship to SDS & SSO all throughout my commentaries this week.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864

SDS-SSO Model Update - June 4, 2009

2009-06-05T00:00:00.002-04:00

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-SSO Model Update - June 4, 2009 - (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

the s&p 500 sort of wobbled around and closed up for the day. the data and charts continue to show upward momentum for the index but it's clear the index is fitting against some resistance to go much higher. there maybe room for it to go high but we are a few ticks away from uncharted territory with respect to RSI, vector c & theta. neutral weightings are still spreading to extremes. PID-7 says despite these recent extreme conditions, the temperature in the boiler so to speak is not very high. PID-7 is still just hovering on the positive side of it's axis of oscillation indicating to me just a little movement to the down side will push the "center of mass" of the system just slightly over the other side of the fulcrum point. there's a lot of potential stored in the system with weight spreads like we have them now. so we'll have to see.

best regards,
mike james

Managing Member
Equity Informatics, LLC
phone:302-220-3864