what we do
Our focus is on the development of proprietary geodesic models that characterize the behavior of leveraged long/short ETFs in pairs trades using first principles of Hamilton-Lagrange-Euler mechanics. Because of tracking errors & daily compounding phenomena, equal weightings of leveraged ETFs in a pairs trade are virtually never 50-50. Daily data & graphics will show subscribers where neutral pair weightings have moved along the path of the pairs geodesic thereby providing multiple market direction & re-balance indicators.
| | 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. | | |
Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | | | Today's Commentary
the S&P 500 index sold off today and sellers managed to contain late day buying & closed near the intraday low. the index fell -1.27%. this was the second down day in a row and the 4th out of the last five trading days the index has now closed down. whatelse that is noteworthy is the index today has not closed down this much in 1 trading day since july-7-2009. as far as the model analysis goes, the geodesic parameter rates of change are steadily approaching a cross which would signal a change in market sentiment. see below. however, based on the track record of this rally i will not speculate on when the cross will happen or if a sell-off will be sustained. every month since april around the 3rd week of the month the index starts to fawn as if it wants to roll over and all of a sudden buyers rush in driving the index higher. now that we are in august you'd figure, well, it's been 5 months of rally, rally, rally. up +50% from the lows. surely the index is due for a correction. sadely many market pronosticators, including myself, have been wrong about a correction since may. i see what the numbers are telling me from a technical perspective and i see what busines & economic fundamentals are telling me and i've guessed wrong about what the market will everytime. so i'm a bit more cautious and am positioned in my own pairs trade accordingly. in addition, i'm concerned that SSO has lost a great deal of needed "elastic memory" due to non-linear compounding & tracking errors. look at the chart below.  the light blue line is a relative %change plot for SDS and the orange line is the same for SSO. while the line for SDS has had a reasonable amount of change up and down for the last year, SSO has kind of remained compressed. instead of behaving like a compression spring and elongated after the load is removed, SSO is behaving more clay or silicone. a piece of clay that has been pressed in by an object remembers the shape of the object after the object has been removed from the clay. that's what makes clay or silicone a great material for mold making. ideally we like to have "stored energy" release itself as the opposing load decreases. otherwise we run into a case where the pair can not be kept in static equilibrium by changing the weights of the pairs alone. unless the market begins to significantly correct in the next week or so, the pairs trade will become dynamic and certain assumptions will have to change. more on this soon. disclosures: am about 50:50 SDS & SSO with my pairs trade at the close of today. | | |
Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | | | Today's Commentary
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. | | |
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.
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Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | | | Today's Commentary
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.
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Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | | | Today's Commentary
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.
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Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | | | Today's Commentary
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.
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Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | | | Today's Commentary
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.
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Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | |
Today's Commentary
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. | | |
Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | |
Today's Commentary
the S&P 500 index 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.
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Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | |
Today's Commentary 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. | | |
Dear Blogger, thank you! again for subscribing to the S&P 500 long/short ETF Model and welcome to new members who just joined and new list subscribers. today's analysis is available for download:
ignore the missing data error message that may pop-up when opening up the file. Excel for Windows looks for metadata that Excel for Mac doesn't generate.
if you ever misplace your login, send me a message using the email you originally provided when subscribing through paypal. visit the blog for an archive of all subscriber updates and alerts. the archive is search-able and comments can be posted by everybody. | |
Today's Commentary
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!
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Disclaimer
Equity Informatics is a developer and service provider of proprietary financial equity pricing models & trading methods. The company familiarizes subscribers with the basic thesis of our models, provides subscribers with daily neutral pair weightings and methodologies on how to use the data as intended. subscribers shall not share any information obtained from equity informatics with any other party. use of these services are granted only to and intended for the benefit of the subscriber. Equity Informatics does not offer the sale of equities nor do our trading models constitute trading advise. It is incumbent on potential clients to perform due diligence and seek a professional financial adviser to help you determine whether subscribing to the company's services are suitable for your financial situation and level of risk. No guarentees of performance are expressly or implicitly offered nor does Equity Informatics guarantee the accuracy of market information used to provide model data to our client. equity informatics does not assume responsibility for lost principal, lost gains or tax consequences.
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