Market Timing Using 30 Year Bond Yield

This method was described by Mark Boucher in his book “The Hedge Fund Edge”. The method makes use of 30 Year Treasury Bond Yield to decide whether to enter or exit the market.

The method is pretty simple. It will buy the S&P when the 12 month rate of change of the 30 Year Treasury Bond Yield is less than 9%. The position is held until the 12 month rate of change of the 30 Year Treasury Bond Yield exceeds 9% again.

According to his study from 1947 till end of 1997, the probability of win is around 65%.

When I apply this same method using Dow Jones Industrial Average from 1979 till Apr 2008, I obtained the following results:

Entry Date	Entry Price	Exit Date	Exit Price	% Change	Bars Held
2/1/1979	839.22	3/1/1979	808.82	-3.62	1
4/2/1979	859.93	5/1/1979	854.9	-0.58	1
6/1/1979	822.33	11/1/1979	815.7	-0.81	5
3/2/1981	974.58	5/1/1981	997.75	2.38	2
12/1/1981	888.98	1/4/1982	875	-1.57	1
3/1/1982	824.39	12/1/1983	1276.02	54.78	21
2/1/1984	1220.58	3/1/1984	1154.63	-5.4	1
9/4/1984	1222.39	5/1/1987	2286.36	87.04	32
5/2/1988	2032.33	9/4/1990	2614.36	28.64	28
10/1/1990	2452.48	11/1/1990	2442.33	-0.41	1
12/3/1990	2559.65	7/1/1994	3624.96	41.62	43
4/3/1995	4157.69	1/2/1997	6448.27	55.09	21
3/3/1997	6877.74	9/1/1999	10828.44	57.44	30
4/3/2000	10863.28	5/3/2004	10227.27	-5.85	49
8/2/2004	10138.45	5/1/2006	11367.78	12.13	21
10/2/2006	11678.99	Open	Open	9.77	19

There were total of 16 trades with 9 being profitable. The average profit is about 20% and the average loss is about 3%.