Low Drawdown SPY-BIL Market Timer

Investing in the stock market can deliver attractive long-term returns, but major market crashes can wipe out years of gains. The challenge is not simply to make money in rising markets, but to protect your capital when markets turn down.

The SPY–BIL Market Timer is designed to do both. It follows the S&P 500 during favourable market conditions and switches to defensive investments when the risk of a sustained decline increases. Its objective is to reduce major losses without sacrificing long-term investment performance.

In a historical simulation covering 1995–2026, the S&P 500 ETF (SPY) experienced a maximum drawdown of 55.2% (10yr 33.7%). The model’s dynamically selected Treasury ETF strategy reduced this to 19.1% (12.9%), while achieving an annualised return of 13.2% (16.5%), compared with 11.0% (15.3) for SPY.

How the SPY–BIL Market Timer Works

The SPY–BIL model evaluates market conditions using four components: (1) momentum, (2) trend quality, (3) Fibonacci position and (4) volume confirmation. These are calculated over three time horizons: short term (21 trading days), medium term (63 days) and long term (252 days). The components are combined into a daily Bull–Bear rating for each horizon, ranging from −10 (strongly bearish) to +10 (strongly bullish).

Changes in these ratings provide the Buy–Sell signals, which measure the direction and strength of market movements while taking the prevailing Bull–Bear ratings into account.

Switching Between Investments

A switch is signaled only when all three Buy–Sell indicators agree and meet the required thresholds: sufficiently negative to exit SPY or sufficiently positive to re-enter. Since such movements may continue, the objective is to execute the switch as early as practicable.

Predictive Signaling

Each evening, the model calculates the SPY switching-price threshold for the following trading day. If SPY trades beyond this threshold near the next market close, the corresponding switch can be executed at or near that close. These predictive signals are intended to be distributed to subscribing members through email and SMS alerts.

Where Does the Investment Go When Exiting SPY?

The model offers three defensive alternatives, selectable in the interactive simulation:

• BIL: Short-term US Treasury bills.
• Best Treasury ETF: Dynamically selects the strongest positively rated ETF from SHY, IEF and TLT, reverting to BIL when none qualifies.
• GLD: Gold, providing an alternative to Treasury securities.