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mike's current entrepreneurial focus comprises the innovative development of ETF quantitative hedging technology using classical Euler-Lagrange-Hamilton mechanical methods. long & short index ETFs are quantitatively paired to optimize delta neutral or high beta portfolio performance w/o... More
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  • S&P 500 geodesic pairs trade - August 28, 2009 0 comments
    Aug 31, 2009 1:24 PM | about stocks: SDS, SH, SSO, SPY, SPY, BIV, BLV, BND, IEF, IEI, LQD, TIP, TLH, TLO, TLT
    current model indication: cautiously bullish on the S&P 500 since 2009-08-21

    Last week ending 2009-08-28 we saw lots of action by the fed in particular on tues, wed, & thurs.  2 yr, 5 yr & 7 year notes were sold essentially without a hitch.  As the jargon goes, indirect buyers (foreign agencies) were the overwhelming primary participants.  I defer to bond gurus who generally have said the week was a success for the fed.  Countries are still interested in buying U.S. debt.  As a result, U.S. equities markets were rather flat all week along with the S&P 500 index.

    Today I’ll post and discuss the usual geodesic charts.  Also, there is one other interesting aspect of the model I'll discuss which may shed more light on short-term S&P 500 index behavior. 



    The chart above plots the S&P 500 geodesic model's parameters with respect to each other.  the geodesic is a 2-D vector with mangitude and angular characteristics.   chart depicts angle vs. mantitude of the vector.  each dot represents the coordinates of the vector at the end of each day.  In statistics the chart is called a scatter plot.  the yellow points are the most recent parameter coordinates, the bottom lower right point being the coordinates for EOD 2009-08-28.  Notice the portion of the curve just prior to this point where points were bunching up.  This region of the curve corresponds to potential bearishness reflected in the geodesic model prior to last week. Then the performance from last week pretty much exhibited bullish-like behavior.  Also note the magnitudes of the displacements in the model parameters are approaching the same level of the march-2009 lows indicated by the coordinates above the 45 degree line in magenta to the top far right.  We could be at those levels in another week or two of trading.  Then I will issue a local overbought indication if we get there.

    The bunched region of  coordinates mentioned above correlate to the region of the chart below where the magenta line and blue line meet at y=0 just prior to 2009-08-24.  The blue line measures the geodesic angular velocity and the magenta line measures arc-length velocity.  When those two parameters meet the model is signaling a potential change in the S&P 500 index sentiment.  Since the march lows, these points have proven to be entry places where buyers have been rushing back into the market.  Nonetheless, any bearish signal has to be taken seriously.  As indicated by market action today, 2009-08-31, there maybe some parameter motion back toward a bearish position this week. we'll have to see how far that goes whether buyers rush in again.


    Now on to the extra feature.  The chart below plots the daily change of the arc-length velocity, which is the quantity [diff-c(today) - diff-c(yesterday)].  For example sake, this plot looks a lot like a seismograph.  It looks as though we’re in for choppy index behavior based on the rising amplitudes of the trace.  This may indicate we will need to take any bearish signals from the model more seriously.  As the market went up from march lows, the trace had gone almost flat-line.  Now it looks like we're at the early stages of experiencing higher index volatility.



    proceed with caution!!!

    dislosures:   in my SH-SPY pairs trade, i am still 95% SPY & 5% SH.  one half of my pairs trade is counter-weighted with holding bond ETFs listed in my tags. the remainder of my portfolio is in 15% cash.
    Themes: geodesics, ETF pairs trades Stocks: SDS, SH, SSO, SPY, SPY, BIV, BLV, BND, IEF, IEI, LQD, TIP, TLH, TLO, TLT
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  • the market is very finicky right now. time to consider getting into to some bond ETFs like BIV, BND & IEF.
    Nov 27, 2009
  • a little dip is due. the market really shouldn't cheat the short man. otherwise he will turn into a big bear. we don't want that.
    Nov 26, 2009
  • no more u.s. government bond auctions this week is NOT good news for the equities market for the next few trading days.
    Nov 18, 2009
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