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Signals and Commentary for SP500 01/05/2011

|Includes:FAS, FAZ, GLD, QQQ, SH, SPDR S&P 500 Trust ETF (SPY), USO, VIXX, VXX

Learning Models :

Neural Net Daily Trend Identifier : UP [0.81 confidence : uptrend confidence is falling ]

Daily Short-Term Overreaction : DOWN [0.9 confidence]

Filtering Model (4-hour frequency):

Main Trend : UP
Momentum : UP [increasing]

Mean Reversion (4-trading hours frequency) :

4 periods accumulated return (16 hours)  : 0.98%
percentile :  70%

9 periods Return (36 hours)  : 0.91%
percentile :  58.0%

Volatility :

10 period Volatility (40 hours) : 7.8% annualized
percentile :  22%

Relative Volatility (10 per / 50 per)
percentile : 59%

Markov Regime Switching identifier ( daily close ):

Probability of a strong uptrend regime : 1.4
Probability of a  weak uptrend regime : 41.6
Probability of a sideways / weak uptrend regime : 53
Probability of a downtrend / volatile regime : 4

SPY - VIX statistical relationship ( daily close ):

zone : uptrend
percentile :44.0% [ normal ]

Wavelet Discontinuity Watch (daily close ) :

Risk of crash is low but starting to increase.

Higher frequencies starting to increase. Trend change pattern emerging.


Overall commentary for Jan/05:

Neuralnet trend model divergences persist. Model confidence on the uptrend keeps below 0.9. That means trend is weakening/ending.

Main trend still up, with increasing momentum.

Mean reversion setup with 70% probability of win within 16 hours. Rising volatility from low levels (currently at 22% percentile) should make this play even more attractive, albeit less than yesterday, when we reported SPY sitting at its 75% percentile.

MatLab´s Markov model is estimating a higher likelihood of weak uptrend or consolidation. Before a more pronounced correction, downside scenario probability usually shoots up above 20%.

Wavelet model probability of a discontinuity ( for example, a crash) is increasing.

Higher frequencies becoming more dominant on daily data, suggesting higher volatility will be a reality very soon.


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