Before moving on to 2017 I want to revisit a couple of “old” ideas I wrote about recently.
One 9/23/16 I detailed a very aggressive bond trading strategy. The model 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 Direxion Daily 20+ Year Treasury Bull 3X Shares (NYSE:TMF) (a triple leveraged long-term treasury bond fund) is held.
As shown in Figure 1, the first model turns:
*Bullish for bonds when the 5-week moving average for ticker iShares MSCI Japan (NYSE:EWJ) drops below the 30-week moving average.
*Bearish for bonds when the 5-week moving average for EWJ rises above the 30-week moving average.
Figure 1: 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
*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 3 displays the growth of $1,000 invested in TMF is the bearish conditions above apply since 4/16/2009 (when TMF started trading).
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.
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.