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Signals and Commentary for SP500 Jan/08/2011

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



chart [ green : uptrend high confidence | yellow : uptrend low confidence ]

 

Statistical Learning Models :

 

Neural Net Daily Trend Identifier : UP [0.42 confidence : Low ]

Daily Short-Term Overreaction : UP [confidence : High]

 

 

Filtering Model (4-hour frequency):

 

Main Trend : UP

Momentum : UP [increasing]

 

 

Mean Reversion (4-trading hours frequency) :

 

4 periods accumulated return (16 hours)  : 0.6%

percentile :  59%

 

 

9 periods Return (36 hours)  : 1.3%

percentile :  68.2%

 

Volatility :

 

10 period Volatility (40 hours) : 7.8% annualized

percentile :  22%

 

Relative Volatility (10 per / 50 per)

percentile : 69%

 

Markov Regime Switching identifier ( daily close ):

 

Probability of a strong uptrend regime : 2.4

Probability of a  weak uptrend regime : 29.5

Probability of a sideways / weak uptrend regime : 54.8

Probability of a downtrend / volatile regime : 13.3

 

SPY - VIX statistical relationship ( daily close ):

 

zone : uptrend

percentile : 45.2% [ normal ]

 

Wavelet Discontinuity Watch (daily close ) :

 

Risk of a correction / crash increasing.

 

 High volatility regime pattern emerging.

 

 

 

Overall commentary for Jan/10/2011:

 

Neuralnet trend model still in uptrend zone, but confidence dropped to low levels.

Main trend up, with increasing momentum.

Volatility is now stable, but volatility trend is up.

MatLab´s Markov model updated the regime probabilities, downtrend regime increased for third consecutive day from 10.4% to 13.3%. The dangerous zone is around 20% . We will keep a close eye on it today. A major down day could trigger a snowball.

 

Wavelet model probability of a discontinuity is increasing, and beginning to show similarities with April 2010 highs.

 

Model suggested positioning did not change : small short with stops at SPY highs around 127.8.

 

Good trading.

 

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