FAQ

How is the Bond Value Ratio calculated?

The Bond Value Ratio is my proprietary indicator for the trend of US treasury bond yields, and is described in Seeking Beta in the Bond Market: A Math-driven Investment Strategy for Higher Returns.

The “Bond Value Ratio” (BVR), is based on the daily yields-to-maturity of the 30-year Treasury bond (i30) and the 10-year note (i10). Bond values derive from the daily yields, and the relationship between those bond values is captured by the BVR, which is an indicator of up or down bond markets. BVR increases if the value change of the 30-year bond exceeds the value change of the 10-year note (an up bond market), and vice versa.

BVR will increase under the following conditions:

i30 and i10 decreases by the same amount. This is a parallel shift of the yield curve but the long bond will gain more than the 10 year note.
i30 and i10 decrease both by different amounts, but the long bond gains more than the 10 year note.
i30 is constant and i10 increases. The value of the long bond will not change but the 10 year note will decrease in value.
i30 and i10 both increase but i10 increases much more than i30. Although the value of the 30 year bond becomes less, the 10 year note looses more value than the 30 year bond.

The upper switch points are generated when BVR is above the upper offset line and turns downwards. At upper switch points the model suggests to sell high (long) bonds and switch into cash or low beta (short) bonds. And vice versa for the lower switch points.

How is the level of COMP calculated?

The three component indices listed in appendix A of The Use of Recession Indicators in Stock Market Timing are used to produce the COMP. They are normalized and proprietary weightings are applied to them, optimized to produce the highest score from my recession indicator evaluation system described in Evaluating Popular Recession Indicators.

Can the MAC-system be applied to markets outside the US?

No, the MAC-system only applies to the S&P500 stock market index.

What would have happened if the MAC-system’s sell spread after a buy signal in mid-2010 never crossed above the zero-line?

Then one would have been constantly invested because one would not have had a sell signal in August 2011.

How does one handle periods when both a buy signal and a sell signal from the MAC-system are in place; which signal takes precedence and why?

(I had been thinking that the buy and sell signals were independent, and they each remained in force as long as they continued to exceed their respective spreads. Since they have different time lags, there are many occasions where they overlap.)

There is no such condition as a period when both a buy signal and a sell signal are in place, because the signals can only occur on one particular day. A sell signal can only occur when the model is in the market, and a buy signal can only occur when the model is out of the market.

What happens when one is out of the market due to a previous sell signal from the MAC-system, then a buy signal is given, but it turns out that the buy signal was triggered by a temporary pop in the stock market as opposed to a sustained trend change? If the market then proceeds to decline in a long trend, wouldn’t that cause the model to remain in the market?

Yes, the MAC model would remain in the market.

I know the IBH-model generates three types of buy/sell signals but I am unsure as to how to use them. Are they intended for scaling in and out of the market? For example, if a basic buy is generated do you invest one third of the portfolio followed by remaining thirds after each of the A and B signals?

The model does not have a basic buy signal. There are types A, B, and C buy signals. The model assumes that one would buy immediately when the first buy signal occurs. Subsequent buy signals which may occur before a sell signals are ignored.

I just read today that the ECRI is constantly revising their past weekly data. Have you found this to be a problem? One can only go with the data as it is presented, and if one were back-testing, how would one know they revised the data later, which could seriously alter one’s signals?

I was aware that ECRI revises their data periodically but I have not seen them doing it before for such a long period. The latest revision is from Jan-2011 to Sep-2011. I re-calculated my spreadsheet with the revised data (back-testing) and the Sell-basic signal appears now 2 weeks later on May 25, 2011. So there is a marginal difference here which does not rally affect the IBH-model.

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iM-DrawdownShield

Nov 2, 2026

New Model – Coming Soon
A fully technical S&P 500 market timer using a novel three-horizon trend analysis to identify sustained market movements, reduce exposure during declining markets and participate in rising markets — with relatively infrequent trading.
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 iM-DrawdownShieldis 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%. The model’s dynamically selected Treasury ETF strategy reduced this to 19.6%, while achieving an annualised return of 12.1%, compared with 11.0% for SPY.

Stocks Are Overvalued, Expect Losses And Low 10-Year Forward Returns: Update October 2025

Nov 6, 2025

The S&P 500 averaged 6,736 for October 2025, 2,604 points above its long-term trend of 4,132, implying a 39% decline to reach the trend and signifying a valuation substantially above historic norm.
The long-term trend indicates a forward 10-year annualized real return of only 1.4%, while the CAPE-MA35 methodology derived 10-year annualized real return is also modest at about 4.3%, indicating limited long-term upside.
The short-term outlook indicated by CAPE-MA35 Neutral phase has historically yielded low short-term returns.

The iM CAPE-MA35 ETF Rotation Strategy with 4 ETFs

Oct 24, 2025

This is a dynamic ETF allocation strategy using the CAPE-MA35 ratio—the Shiller CAPE divided by its 35-year moving average—to identify market phases and adjust portfolio exposure.
The model defines four primary phases with respective ETFs—Growth (QQQ), Defensive (GLD, XLU), Uptrend (QQQ, XLE), and Downtrend (GLD)—based on the trend and relative valuation of CAPE-MA35. ETF allocations are adjusted monthly in response to these phases.
Backtesting from 1999 to 2025 shows the model outperforms SPY with 20.1% annualized returns, lower drawdowns, and consistent long-term performance with low turnover.
The strategy offers a practical, rules-based approach to market timing, blending long-term valuation with trend analysis for superior risk-adjusted returns.

Dynamic ETF Allocation Using CAPE-MA35: A Market Timing Framework Based on the Shiller CAPE

Oct 18, 2025

This study presents a rules-based ETF allocation model that uses the CAPE-MA35 ratio—the Shiller CAPE divided by its 35-year moving average—to identify distinct market phases and dynamically adjust portfolio exposure.
The model defines four primary phases—Growth, Defensive, Uptrend, and Downtrend—based on the trend and relative valuation of CAPE-MA35. ETF allocations are adjusted monthly in response to these phases.

Stocks Are Still Overvalued Despite Recent Significant Declines, Expect Further Losses, But Modest 10-Year Forward Returns: Update April 2025

Apr 5, 2025

The average of S&P 500 for March 2025 was 5,680, declining to 5,074 by April 4, 2025 (now 13% up from Jul-2023 average of 4,497 when forward returns for stocks “looked reasonably good” according to this analysis).
The S&P 500 is still 1,140 points higher than the corresponding long-term trend value of 3,934 for April 2025.
For the S&P 500 to reach the corresponding long-trend value would entail a 22% decline from the April 4, 2025 value, indicating that the S&P 500 is still considerably overvalued.
Assuming that the current S&P 500 value remains unchanged until the end of April, then the CAPE-ratio would be 31.0, 15% higher than its 35-year moving average (MA35), currently at 26.9.
The long-term trend indicates a forward 10-year annualized real return of 4.0%, while the CAPE-MA35 methodology derived 10-year annualized real return is better at about 6.7%.