squark62's  Instablog

indication: and the beat goes on..

whether one likes it or not, the liquidity-fed equities beat goes on...for now.  as i said earlier this week, if the signal & 12 DMA cross, i would cancel the latest bear watch.  but it's becoming quite clear from my vantage point that the index is getting quite stretched.  peak-to-peak amplitudes of this parameter are getting more energetic with each cycle which is about every 4 weeks.  if recent index behavior is still a good indication of what to expect, we have about 10 more trading days of upward momentum before the next ground shift changes.  more charts coming through out the weekend.

(visit my intro to trading long/short ETFs in pairs using geodesic concepts)

S&P 500 model indication:
the 12 DMA of the geodesic delta diff parameter has continued downward as it lags the signal.  however as the charts shows, the signal today advanced rapidly toward the 12 DMA.  my observation says tomorrow's trading will determine the course of the index probably for another 10 trading days.  if the signal does cross the 12 DMA, more than likely my BEAR watch will be cancelled for the short-term.  pudent traders will however begin to shave profits from long positions and seek to put some of those proceeds into short positions, other hedges or just cash.  swings appear to be going higher up & lower down.  stay sharp and ahead of the ball.

(visit my intro to trading long/short ETFs in pairs using geodesic concepts)

S&P 500 model indication change:
in the graph below, the 12 DMA of the geodesic delta diff parameter has crossed into negative territory technically confirming a sentiment shift to BEARISH for the S&P 500.  the raw signal has been negative for several trading days and with wednesday's lackluster index reponse to the Fed's continuation of easy liquidity was enough to drag the 12 DMA negative.  the change has been very steep but overall volatility has risen significantly.  expect dramatic intraday & day-to-day changes in the S&P 500 up and down for the foreseeable future. 

there will be days when the market pops but know it's incumbent on the bulls to show they can pull the rug out from underneath the bears.  bears have a better grip and momentum is in their favor.  days when the market pops, start taking some profits off the table and start buying a little insurance via put options in the index, or short ETFs such as SH or SDS in small chunks.  buying the volatility ETNs is another approach.  just make sure they're liquid.

(see my intro to trading long/short ETFs in pairs using geodesic concepts for general background)

Current S&P 500 model indication:
mid-range outlook: overbought - since 2009-09-09
near-term outlook: oversold - since 2009-10-30
index volatility increasing significantly - since 2009-10-23

oct-30-2009 21:15 EST
in 9 trading days (from oct-20 to oct-30) the S&P 500 index wiped out all it's gains from sep-9, when i called the index overbought, to oct-19.  because the rate of decline thus far has been so fast, the "delta neutral" geodesic coordinates are way behind in catching up with it's position on sep-9.

think of a paddle ball toy with a rubber ball attached to the paddle by an elastic string.  after hitting the ball with the paddle, it's is possible to pull the paddle back for a period of time before the string stretches enough to change the velocity of the ball in the same direction of motion as the paddle.  or think of driving a boat on a calm flat surface of water and then suddenly you put the motor in reverse w/o turning the wheel, it will take some time before the boat stops and starts moving in the opposite direction.  there are other analogies, but hopefully this will suffice for now.

ok, so since S&P 500 today is where it was on sep-09, would the index be considered corrected?  depends on what you mean by corrected.  using the geodesic analysis as i have described, i would say no.  the ball (delta neutral) is still out of position by a good deal from where it was on sep-9.   see below.

turns out the ball is headed back in the same direction as the "paddle" as annotated by the red arrow above.  but presuming the S&P 500 fully corrects from here, there's considerable more time and downward motion of the index before delta neutral compensates for lagging the index.  at the moment i'm pondering estimates as how much further would the index change to move the geodesic coordinates back to sep-9 levels.  will post more of the usual charts soon and some i haven't published before.

the chart below is what i call my "seismographic" or volatility indicator.  the further the "delta neutral" geodesic coordinates gets away from the apex, the greater the uncertainty of knowing which direction the index will be going from day to day.  bottom line, things are getting pretty dicey!  increasing s-waves on the way!  that's geological speak for this type of shaking is the most dangerous and causes the most damage.  conservative traders may want to consider selling on the pops.

Current S&P 500 model indication:
overbought - since 2009-09-09 (see geodesic chart below)
cautiously bullish overall - since 2009-10-09
notes: as of today 2009-10-28 the 5% index decline i expected to materialize has just about arrived into the train station.  i expect the rest of this week to remain choppy and to the downside but next week might be a perfect time for new money to enter the market.
*** 2009-29-09 update: buy buy buy!

(see my basic geodesic concepts primer for a general model description)

commentary:
expecting the S&P 500 index to trade sideways to down all week.  a gang of treasury auctions are on deck & my geodesic index indicators don't look good for the next 5+ trading days.  but look for an index rebound in the first week of november.

Geodeisc Chart: momentum has slowed toward the end of the period indicated.  this is illustrated by closer spacing between geodesic coordinates.



Geodesic Delta Diff Chart: this chart plots in blue a time series of the difference between the 2 geodesic coordinate values.  the yellow is the 12 DMA.  when either plot is slopped downward, this indicates a decline in the S&P 500.  the blue line leads & the yellow lags.  the yellow line is perhaps a better indicator of trends taking place on the order of weeks vs days on the blue data.  as you can see i circled the blue line crossing the yellow line confirming a downward trend in the S&P 500.  a yellow line with a value below zero signals a confirmed sentiment change in the index.  not there yet!



Geodesic Delta Diff-c Chart: this plot is the same type as above but only looking at the vector length change paramter.  the primary reason for including this chart in this report is to illustrate the cycle of the geodesic like a seismograph.  there are 4 (perhaps 5) notable sections of the chart.  see if you can distinguish between the sections.  the main point is the further the geodesic coordinates travel from the apex of the curve, the greater the gain (volatility) in the signal.  near the apex of the curve the signal is fairly flat.  you can see for yourself we're approaching the level of signal seen prior to oct-08 and well beyond levels of uncertainty seen in mar-08.

Current S&P 500 model indication:
overbought - (since 2009-09-09)
cautiously bullish - (since 2009-10-09)
notes - watching for a possible 5% or so decline to materialize in the index over 10 trading days out from october 16.

(see my basic geodesic concepts post for a general model description)

i did not post any charts for the week ending on 2009-10-09.  the results are included in this one.  coincidently the geodesic coordinates reversed direction on 2009-10-09 as indicated by the arrow in the diagram below.  motion along the geodesic path in this direction always indicates a positive upward bias in the S&P 500.  remember, the geodesic is 2-D curve in time so anytime the arrow has a negatively-sloped theta directional component, the model indicates a positive upward bias.  a positively-sloped theta directional component indicates a downward bias in the S&P 500.  note, the current plot shows an increase in velocity of motion along the geodesic consistent with the quick rise in the S&P 500 over the last 7 or so trading days despite selling off the last 2 trading days.




the chart below looks at the difference between the rates of change in angular and path velocity.  > 0 indicates a positive upward bias in the S&P 500 and < 0 indicates a downward bias.  the yellow trace is the 12 DMA.  the yellow trace therefore responds more slowly to changes and is a longer term index indicator than above.  the yellow trace almost dipped below zero when it looked like the market had recently sold-off but then recovered.  the pattern is very similar in the end of may when the trace touched zero, went up for a bit then actually crossing zero & staying below zero for about the last 2 weeks in june & the first 2 weeks in july.  watch for the yellow trace to peek below the last rise no higher than a y-value of 0.007.



dislosures:   in my SH-SPY pairs trade, i am 66% SH & 34% SPY.  my long holdings are also counter-weighted by bond ETFs listed in my tags. operating with 15% cash.  use of the information contained in my blog is at your own risk.  the data if for personal information purposes only and is not to be considered as financial advice.