Market calls 2

[winyaz]

I'm a trend follower and trade quantified strategies, so I don't make market calls, but I have tested and am using a signal to reduce risk, inspired by the tactical asset allocation strategy: Vigilant Asset Allocation (VAA) from Dr. Wouter Keller and JW Keuning, see here: Vigilant Asset Allocation from Dr. Wouter Keller and JW Keuning - Allocate Smartly

Simply put, if Bonds (BND) are below their 4 month simple moving average (anything from 3 to 9 months works pretty similarly), it's better to step aside. I did not test using the other indices as in VAA, as the results of my test on BND are compelling by itself. BND was below it's 4 month or 84 day simple moving average on April 30th, and again moved convincingly below that level today. Combine that with an historically overbought market and today's reversal is enough for me, I reduced risk today. There is an old saying that the Bond Market is smarter than the Stock market, and I've done enough testing to say that is historically true.

That said, nothing is perfect, and it can be painfully wrong at times. I think it was out the market 6 months in 1999, when the Nasdaq basically doubled.

 

[Montecfo]

I'm a trend follower and trade quantified strategies, so I don't make market calls, but I have tested and am using a signal to reduce risk, inspired by the tactical asset allocation strategy: Vigilant Asset Allocation (VAA) from Dr. Wouter Keller and JW Keuning, see here: Vigilant Asset Allocation from Dr. Wouter Keller and JW Keuning - Allocate Smartly

Simply put, if Bonds (BND) are below their 4 month simple moving average (anything from 3 to 9 months works pretty similarly), it's better to step aside. I did not test using the other indices as in VAA, as the results of my test on BND are compelling by itself. BND was below it's 4 month or 84 day simple moving average on April 30th, and again moved convincingly below that level today. Combine that with an historically overbought market and today's reversal is enough for me, I reduced risk today. There is an old saying that the Bond Market is smarter than the Stock market, and I've done enough testing to say that is historically true.

That said, nothing is perfect, and it can be painfully wrong at times. I think it was out the market 6 months in 1999, when the Nasdaq basically doubled.

That's interesting. When you say BND is below its 84 day simple moving average, you mean the price, not the yield.

Higher rates make growth stocks less valuable so that makes sense.

But when do you re-enter?

 

[winyaz]

That's interesting. When you say BND is below its 84 day simple moving average, you mean the price, not the yield.

Higher rates make growth stocks less valuable so that makes sense.

But when do you re-enter?

Good question. Yes, I'm looking at the price. I always look for positive momentum either in the asset or the market as well. I did some testing on Nasdaq stocks going all the way back to 2000. The best performer was to be long when BND (VBMFX) > 4m SMA AND QQQ > 10m SMA. Interestingly, using OR produced notably higher returns, but even higher risk - and I always focus on risk adjusted returns. I am looking at possibly using the 4M SMA on the market as that worked pretty well also, and was in the market about 65% of the time, vs 47% w/ the 10m SMA. I think the 10m has the advantage in the long bear markets, the 4m otherwise.

 

[COcheesehead]

One of the two easiest market timing mechanisms is interest rates. Just thought it was timely to remind folks of this tidbit.

 

[Montecfo]

One of the two easiest market timing mechanisms is interest rates. Just thought it was timely to remind folks of this tidbit.

Strongly agree.

 

[FD1000]

UTG is also a good example of a leveraged CEF. I am a recent newcomer to the high yield PIMCO CEFs, so I defer to you on the AUM. I am a long time holder of PIMIX.

The question is why I need to use UTG?
First, it's all in stocks. Most investors use leveraged bond CEFs.
Second, since 2000: SPY has better performance (which includes everything), lower SD, and better Sharpe.

 

[FD1000]

Good question. Yes, I'm looking at the price. I always look for positive momentum either in the asset or the market as well. I did some testing on Nasdaq stocks going all the way back to 2000. The best performer was to be long when BND (VBMFX) > 4m SMA AND QQQ > 10m SMA. Interestingly, using OR produced notably higher returns, but even higher risk - and I always focus on risk adjusted returns. I am looking at possibly using the 4M SMA on the market as that worked pretty well also, and was in the market about 65% of the time, vs 47% w/ the 10m SMA. I think the 10m has the advantage in the long bear markets, the 4m otherwise.

Let's test the above. Using 2022 is a good one.
* You were out in early 2022 = correct. I sold in early 2022 too.
* In 2023 you had 4 whipsaws = not good.
* The bottom was in 11/2022. You were out = not good. In early 11/2022 I posted that it's time to buy and went in all the way.
* Since you were in/out 4 times and you missed the bottom, you didn't make much and missed at least 20% of the performance. You actually made very little for almost 2 years from 1.1.2022 to 12.1.2023

Next: 2016-17. You didn't have to do anything. QQQ started around 95 and finished at 150.
Instead, you had 2 buys and 2 sells that left you confused and frustrated.

I have checked dozens and dozens of different indicators, and my conclusion was that.
* It's either too fast or too slow, and you miss the top and bottom.
* You trade too much. That takes a toll on most traders, and they give up. Mechanical models with a low number of trades don't work
* There is no better indicator than what the markets actually do in real time. That releases you from explaining why. The why isn't important, and the "experts" who explain it have been wrong many times.

So many "experts" have been yelling for weeks about the war, rates and inflation going higher, and QQQ keeps going up.
Why is it going up? You shouldn't care. I never cared either. An uptrend is the best indicator.

Lastly,
* Instead of deciding in advance on percentages for stocks, CEFs, bonds, think in terms of risk/reward and what funds to use. If QLENX has had better risk/reward than stocks, why do you hold stocks? Why is it only 10% and not 30% of your portfolio? "Just in case" isn't a good answer.
* Don't marry your fund manager. If she doesn't do well, fire her, and buy another fund. She would not scream at you. It takes just 30 seconds to switch funds.

I need more challenges. What are your next easy mechanical trades?

 

[FREE866]

One of the two easiest market timing mechanisms is interest rates. Just thought it was timely to remind folks of this tidbit.

Not sure about that one. What are you basing that on?

 

[kgtest]

The hedge on interest rates (in your home country) could be invested in international exposure. That way when your countries interest rates are high, theoretically the other investments from foreign interest rates would be impacted (positively) to offset the negatives...

It might not be the right way, but I just invest in the one country that has had the most favorable interest rates over my lifetime. That might not be the right answer, but dang it sure was a quick ride up, especially in high tech.

 

[COcheesehead]

Not sure about that one. What are you basing that on?

Market observation in my lifetime. See 2022 for example.
When rates rise, bond values fall. Equities usually play along because their costs rise. When rates fall, bond values rise. Equities piggyback. There are exceptions of course, but this theme plays out time and time again.

 

[FREE866]

Market observation in my lifetime. See 2022 for example.
When rates rise, bond values fall. Equities usually play along because their costs rise. When rates fall, bond values rise. Equities piggyback. There are exceptions of course, but this theme plays out time and time again.

Well, if you look at history, market movements aren't usually "if X happens then Y happens". That would make investing very easy!

Mid 1990's rates were raised a few times and the market soared. From 2015-2018 rates rose and markets did very well. Those are just two examples, but stocks actually do often rise during rising rate periods. Rates are usually raised because the economy is doing well so to a certain extent rising earnings supersede the negative of rising costs. That certainly doesn't mean rate rises cause rising returns, but rates , like PE ratios, are just one factor.

You're right that in 2022 stocks lost a lot as rates rose but a year later stocks soared. So then the question becomes even if the "prediction" is right then you have to decide by how much? By the time the direction is made most is already priced in. So there is no one theme and neither play out time and time again. If it were only that simple!

 

[COcheesehead]

Well, if you look at history, market movements aren't usually "if X happens then Y happens". That would make investing very easy!

Mid 1990's rates were raised a few times and the market soared. From 2015-2018 rates rose and markets did very well. Those are just two examples, but stocks actually do often rise during rising rate periods. Rates are usually raised because the economy is doing well so to a certain extent rising earnings supersede the negative of rising costs. That certainly doesn't mean rate rises cause rising returns, but rates , like PE ratios, are just one factor.

You're right that in 2022 stocks lost a lot as rates rose but a year later stocks soared. So then the question becomes even if the "prediction" is right then you have to decide by how much? By the time the direction is made most is already priced in. So there is no one theme and neither play out time and time again. If it were only that simple!

Markets soared after 2022 because rates leveled off and then dropped. Fits right inline with what I said.
You don’t have to agree. Wall Street traders have a phrase for what I am describing and it goes like this “don’t fight the Fed”.
Let’s chat again with the next move in rates which after yesterday might even be up.

 

[FREE866]

Markets soared after 2022 because rates leveled off and then dropped. Fits right inline with what I said.
You don’t have to agree. Wall Street traders have a phrase for what I am describing and it goes like this “don’t fight the Fed”.
Let’s chat again with the next move in rates which after yesterday might even be up.

It's not that I don't agree, but saying rates moving up will by itself cause stocks to go down is a theory but in practice is a false narrative. My examples above debunk that myth. Stocks historically can do well when rates move up or down.

If one "fought the fed" back in the 90s and from 2015-2018 they did extremely well. That's another false narrative you're attached to. That's not my opinion, it's all in the historical data.

 

[winyaz]

FD1000,
Sorry if I was unclear, but the reason it is a 4 month moving average is because it is only meant to be checked once a month. Many of the whipsaws that you talk about didn't exist. So if I was using it at the time, which I wasn't, I wouldn't have been "confused or frustrated", and I checked my backtests to confirm this. I am using this rule to limit risk in my aggressive strategies, not across the board. I didn't sell everything, I don't use it exclusively, I didn't talk about what I am selling, and I didn't even get into what I do when I reduce risk - as there are alternatives besides cash. I find this rule adds value to what I do. If you don't see the value for what you do, feel free not to use it.

From the link I posted earlier it has been a pretty good indicator. It is not perfect and It is certainly not a complete system.

 

[COcheesehead]

It's not that I don't agree, but saying rates moving up will by itself cause stocks to go down is a theory but in practice is a false narrative. My examples above debunk that myth. Stocks historically can do well when rates move up or down.

If one "fought the fed" back in the 90s and from 2015-2018 they did extremely well. That's another false narrative you're attached to. That's not my opinion, it's all in the historical data.

The effect of interest rates on portfolio value is not a false narrative, but a painful fact for anyone holding fixed income during rate hikes, the basis of my post motivated by yesterday’s hot inflation number.
You want to disagree that’s fine. Many on here know I speak the truth because they saw their bond holdings drop in value in 2022. Some still haven’t recovered.

 

[FREE866]

The effect of interest rates on portfolio value is not a false narrative, but a painful fact for anyone holding fixed income during rate hikes, the basis of my post motivated by yesterday’s hot inflation number.
You want to disagree that’s fine. Many on here know I speak the truth because they saw their bond holdings drop in value in 2022. Some still haven’t recovered.

I think we are having a communication gap. My comments pertain to interest rates effect on stocks. Not bonds.

 

[COcheesehead]

I think we are having a communication gap. My comments pertain to interest rates effect on stocks. Not bonds.

I covered both in my original comment. You must have missed that.
I have a fun hockey game to watch.
I wish you the best.

 

[FD1000]

Since I have invested almost everything in bond OEFs for many years, the following statement may surprise you.
I focus primarily on what bond funds are actually doing in real time, especially the ones I own. That approach allows me to ignore forecasts and opinions and instead rely on actual market behavior.
On top of that, predicting the future, even interest rates, is extremely difficult, and rates fluctuate constantly anyway.
If any of my bond funds begin trending downward, I simply switch or move to money market funds (MM).
That said, I do pay close attention to major unique global and economic developments. For example, in 2022 the Fed was loudly signaling that inflation was a serious problem and that rates would rise rapidly. My response was straightforward: I sold immediately.

Traditional bonds have a strong correlation to interest rates, which is why I never held a direct fund in that category, but bank-loan funds generally do not. EM bonds are another story. Stocks tend to have a lower direct correlation to rates. However, during unusual market conditions, correlations can suddenly rise across many asset categories, and that is exactly when I move to MM.

Below is the 10-year Treasury yield. Notice what has happened since late February:

• BND fell, as expected.
• EIFAX (bank loans) moved higher.
• EIDOX (emerging markets) also gained.

At the moment, my largest allocation is a new fund I never held before and is not typical because I found something that I believe offers a better opportunity.

The key point is this: out of thousands of available funds, I only need two or three that are working well.

 

[joejetski]

The question is why I need to use UTG?
First, it's all in stocks. Most investors use leveraged bond CEFs.
Second, since 2000: SPY has better performance (which includes everything), lower SD, and better Sharpe.

I am not saying you should use UTG, but you were generalizing CEFs with PDI as “representative”. I just think UTG is a more representative CEF. There are others, eg ADX. I just think that PDI is speculative, as do some on the CEF boards as they do not practice buy and hold with any of the higher yielding PIMCOs). Second, on the CEF thread, most investors (including myself) have some allocation to PIMCOs, but many also own an assortment of CEFs including many stock CEFs like ADX, FOF, etc. There are very few where PIMCOs dominate the portfolio. Finally, I wasn’t comparing UTG to SPY, I was merely stating my perspective that it may be a more representative CEF than PDI.

 

[FD1000]

I have been on several sites for close to 20 years. Pimco is the gold standard for leveraged CEFs and has the highest % in this category.
Why would you use UTG?
Stocks have plenty of leverage, like SPY and QQQ times 1.5 to 3.
IMO, everything should be compared to SPY risk-adjusted performance because it's the best stock market index.

 

[FD1000]

I don't see anything that triggers a sell for me.
I only sell based on very high risk.
VIX + MOVE are "normal".

My entire bond portfolio (now in 3 funds) has done well. All my bond funds made money last week.
YTD at 6+%.
Most other bond funds lost money last week and have done poorly YTD. I changed several weeks ago from riskier bond funds (EM) to ones that do well in all markets.

FUND....last week...YTD
PIMIX....-1.6%.......-0.6%(multi)
GIBLX....-1.2%......-0.5%(High-rated bonds)

=================

CEFs have not done well YTD.
YTD based on M*: GOF -6.4% PDI 1.6% PFN -4.2% PHK -2.47% PTY-3%

=================
SCHD continues to do well YTD=16.7. This is what I said on 2/4/2026.

I used to like SCHD, up until 2023. It then went through a rough three-year stretch from 1/1/2023 to 1/1/2026, returning about 22%, while SPY gained 85%+, nearly four times as much.
Times have changed.
Value (VTV) has been outperforming growth for several months now, and SCHD has been doing even better.

No one knows better than Mr. Market.

 

[FD1000]

My ST indicator signaled a buy on March 31st, and the longer term signaled on April 1-2.

Since that call, nothing changed. Stocks have done well.
Dick already discussed the typical CEFs in his thread, and I chimed in there too occasionally.

My portfolio is all in bond OEFs.
I'm invested at 99+% because the risk wasn't very high since that day.
But I changed my portfolio several weeks ago.

On March 5th I said,

EM bond funds that I have been holding since April 2025 have been flat for the past two weeks. I reduced most of my position in EGRIX last week, and today I exited entirely.
My current bond holdings have low SD and have performed well year-to-date regardless of market conditions. I’d rather earn around 0.5-0.7% per month consistently than risk a 1% loss.

What did EGRIX do vs ARBIX since March 5th?

 

[FD1000]

The VIX had a huge move of close to 40% up. For me, it's not only the absolute number.
The MOVE is still low at 75.

Stocks and bonds fell yesterday = not so good.
GLD fell 3.5% too.

The SP500 ST signaled a sell in the last 2 days. The LT had signaled for several days already.

CEFs: PDI LT indicator, AKA weekly MACD, signaled a sell very early in May. It is still a sell.

I changed all my bond OEFs from high risk, such as EGRIX, to 2 funds that have done well in all environments since early April. One of them is ARBIX, and I posted about it a couple of months ago.
The reasons were: EM has been on a tear for over a year, since 04/2025. Instability of the Iran war, a unique global situation, has an effect on currency and rates.

The above tells me yellow light, get ready to sell. But my portfolio is still in an uptrend, so I hold.

====================

My post from last weekend was not correct. I looked again at my accounts.
I sold everything in early March and bought back on the last day of March and first day of April.
So, from April 1st to today, EGRIX did better than ARBIX. Compare EGRIX to PIMIX and see how it handled volatility much better, and in 3 years, it's not even close. PIMIX invests in a high percentage of high-rated bonds. That means less flexibility to rate changes.

See YTD. PIMIX is correlated to DODIX (a good high-rated bond fund).

Look in the last 3 years. EGRIX at 46% vs PIMIX at 24% and ARBIX at 25% but much lower SD.

In the last 3 years: Sharpe and Sortino (down SD) were so much better for EGRIX and ARBIX

 

[COcheesehead]

HOSAX was flat as a pancake yesterday.

 

[Quattro73]

HOSAX was flat as a pancake yesterday.

Pancakes were a great meal for yesterday.


My portfolio was looking like syrup dripping down the drain