The following charts provide history for the bond market forward sentiment gauge, dubbed US1.
Trading rules are provided after the charts.
Trading rules for US1:
If target peak > 1 then Buy at the trough or -1 whichever is greater, exit at peak or +2 whichever is less.
if target peak > 2 extended rally
if target peak > 3 runaway rally
Stay long if trough following the target >+1.75
If longer holding periods are desired moves < .50 in magnitude may be ignored.
If target trough<-.5 then Sell at the peak or +1.5 whichever is less, exit at trough or -3 whichever is greater.
if target trough <-1 extended decline
if target trough <-2 runaway decline
Stay short if peak following the target<-1.5
If longer holding periods are desired moves < .50 in magnitude may be ignored.
An example using the above chart for the 1995 period shows a runaway rally with US1 peaking above +3.
I would buy at the end of October, 1994 which was a US1 trough greater than -3 (actual trough -2.4). I would buy because the peak value in November, 1994 was 2.6, which indicated an extended rally; but more importantly the peak value in June, 1995 was 3.2, which indicated a runaway rally. I would hold long all the way into the June, 1995 peak because the intervening declines stayed above 1.75. In fact, I would hold until mid-September when the US1 returned back to +2, according to the rule set.
