Before moving on to 2017 I want to revisit a couple of “old” ideas I wrote about recently.
One 9/23/16 I wrote this article detailing a very aggressive bond trading strategy. The model detailed essentially combined two other models that I have used for a number of years – one a “timing” model, the other a “seasonal” model. If either model is bullish then ticker TMF (a triple leveraged long-term treasury bond fund) is held.
(See also U.S. Stocks Lead, World Lags (Part II))
As shown in Figure 1, the first model turns:
*Bullish for Bonds when the 5-week moving average for ticker EWJ drops below the 30-week moving average for ticker EWJ
*Bearish for Bonds when the 5-week moving average for ticker EWJ rises above the 30-week moving average for ticker EWJ
Figure 1 – Bond Bull and Bear signals using ticker EWJ (Courtesy AIQ TradingExpert)
The second model simply holds bonds during the last 5 trading days of each month
The rules for Jay’s Very Risky Bond Model (JVRBM) are as follows:
Bullish for TMF if:
*Ticker EWJ 5-week MA < Ticker EWJ 30-week MA, OR
*Today is one of the last 5 trading days of the month
Bearish for TMF if:
*EWJ 5-week MA > EWJ 30-week MA AND today IS NOT one of the last 5 trading days of the month
Figure 2 displays the growth of $1,000 invested in TMF if the bullish conditions above apply since 4/16/2009 (when TMF started trading).
Figure 2 – Growth of $1,000 invested in ticker TMF when JVRBM is Bullish (4/16/2009-12/30/2016)
Figure 3 displays the growth of $1,000 invested in TMF is the bearish conditions above apply since 4/16/2009 (when TMF started trading).
Figure 3 – Growth of $1,000 invested in ticker TMF when JVRBM is Bearish (4/16/2009-12/30/2016)
For the record:
*During the Bullish periods in 2016 ticker TMF gained +72%
*During the Bearish periods in 2016 ticker TMF lost -43%
Figure 4 displays the growth of $1,000 invested in ticker TMF during the Bullish versus Bearish periods in 2016.
Figure 4 – Growth of $1,000 invested in TMF during Bullish versus Bearish periods (12/31/2015-12/31/2016)
All in all not a bad year (Just don’t forget high degree of risk).
Summary
Make no mistake, this is a trading method that entails a great deal of risk. One can reasonably ask if a long position in a triple leveraged fund of any kind is really a good idea.
But, hey, the phrase “high risk, high reward” exists for a reason.
Jay Kaeppel
