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Neural Network Model Prediction

The attached chart represents the current output of my "weekly" neural
network for the S&P 500 Index.  The model output tends to capture market
turns quite nicely.  My personal strategy, subject to change, is to go long
the Index when the indicator exceeds 0.75 and to exit the long position
when it passes below 0.50 to reduce whipsaw risk.  My shorting strategy is
to go short passing below 0.5 and close short passing back above 0.5.  I
began trading this strategy real-time January 19, 1999 using Profunds
no-load UltraBear and UltraBull mutual funds (I have no affiliation with
Profunds).  I plan to use a stop loss strategy of 8% given the funds I am
trading attempt to leverage Index returns with a market Beta of two.  I
will post my trading results beginning next week (Trades will typically be
made at each of the funds' Monday closing NAV).  A table is located to the
right of the chart that displays the indicator's most recent weekly values.
 The current reading generates a "Go Long / Exit Short" signal in that the
model's output is moving from last week's published reading of 0.4714 to
this week's reading of 0.8147.  The chart indicates that when the indicator
is wrong in predicting a market turn, it quickly readjusts itself in one to
two weeks.  Predictions of major market turns tend to lag actual peaks and
troughs by one week.  Visual inspection shows that the indicator was highly
profitable in sustained trending periods, more so in rising markets than
falling.  Whipsaws will occur with this model.  I will be glad to send
anyone who wishes an Excel spreadsheet of the charted indicator values by
week.  The chart is not presented as a recommendation to trade the Index.
It is merely an observation as to what inefficiencies might underlie the
S&P 500 market.  Model enhancements will be made periodically as time
permits (one of which will be a daily model to hopefully complement this
model's weekly predictions). - Brian

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