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%.

IOI Corp Bhd (Symbol: 1961) Case Study

Today I will do a case study on IOI Corporate Bhd (Symbol: 1961). This is an investment holding company that deals with palm oil and rubber.

This stock closed at RM7.55 on Monday. This stock has made a transition from down trend to uptrend.

The price is currently above the 10 day simple moving average, 20 day exponential moving average and 30 day exponential moving average respectively. The last bar on the chart showed a Harami candlestick pattern.

The price managed to bounce off its 10 day simple moving average yesterday which is a good sign.

You can use the method described in my earlier post
HAI-O Case Study to trade this stock.

The trading result for the method when applied to this stock is as follows:

Entry Date	Entry Price	Exit Date	Exit Price	% Change	Bars Held
6/9/2003	1.03	8/5/2003	1.14	10.68	41
2/24/2004	1.73	4/15/2004	1.89	9.25	37
7/9/2004	1.7	7/15/2004	1.65	-2.94	4
8/27/2004	1.7	10/20/2004	1.83	7.65	38
12/27/2004	1.88	12/29/2004	1.89	0.53	2
4/15/2005	1.82	5/18/2005	1.83	0.55	23
6/16/2005	1.92	11/15/2005	2.54	32.29	108
1/11/2006	2.52	1/24/2006	2.5	-0.79	9
4/25/2006	2.84	5/23/2006	2.94	3.52	20
7/10/2006	2.98	9/7/2006	3.28	10.07	43
10/25/2006	3.34	12/15/2006	3.72	11.38	37
1/10/2007	3.74	1/19/2007	3.68	-1.6	7
3/29/2007	4.28	6/5/2007	5.55	29.67	48
9/11/2007	5.35	11/23/2007	6.85	28.04	53
2/18/2008	8	3/4/2008	7.9	-1.25	11
4/23/2008	7.5	Open	Open	-0.67	3

The simulation data is from 2003 to 28 May 2008. In total there were 16 trades with 11 winners and 4 losers. The trade on 23 Apr 08 is still active. Lets see how this trade will turn out.

KLSE Update

KLSE index closed at 1288 points, gaining 20 points for the week. The ADX chart is looking strong with the +DI being above the -DI. ADX value is now at 21 and is turning up. This shows that the market is gaining momentum.





RSI is turning down and is now at 60 level. There may be a slight pull back to the Fibonacci Retracement level of 1266, 1257 and 1247 respectively. These three levels correspond to the 38.2%, 50% and 61.8% retracement of the upmove from 7 Apr to 24 Apr 08.