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.
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
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.
| | |
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
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.
| | |
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
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.
| | |
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 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.
| | |
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 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.
| | |
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.
Copyright (c) 2009 Equity Informatics, LLC. All Rights Reserved.
Posts
