Market moves that used to unfold over months now take weeks and moves that took weeks now take days. "Time compression" has turned many position traders into swing traders and sometimes, into day traders. So what becomes of someone who wants to minimize turnover and hold positions for a long period of time? Has the non-trading investor gone the way of the Brooklyn Dodgers and the dodo bird?

The answer is a resounding "no."

Back in 2007 I was member of a trading system design team. We developed a trading methodology we called the Bongo (don't ask!). It's composed of three RSI lines and one simple moving average, applied to whatever stock/ETF/commodity you are evaluating.

The Bongo requires three RSI lines to be in a "proper" order:

The 8-bar RSI is > than the
14-bar RSI, which is > than the
19-bar RSI, and
Today's (or this week's) close > 9-bar SMA
Signals on Daily Bongos are generated on the day's close. Signals on Weekly Bongos are generated on Friday's close.

Below is a weekly chart of the QQQQ (QQQQ) showing the RSI lines and the SMA:

The Bongo can be used with any time chart but it was designed and tested using daily and weekly charts. A "Bongo Yes" is when the RSI and SMA conditions are met. A "Bongo No" is when they are not. Buy or sell on the day (Daily Bongo) or Monday (Weekly Bongo) following the signal.

We tested the Bongo using 2007 data on a portfolio of stocks and found the Weekly Bongo generated a higher return with lower turnover than the Daily Bongo.

The Bongo works with ETFs as well as stocks. For test purposes I constructed a portfolio of 17 ETFs, both bullish and bearish. With only a few exceptions, all were unleveraged. Where possible I looked for opposite pairs, e.g., SPY and SH. The time period tested was 9/1/08 – 8/31/09, which covered both bullish and bearish market conditions.

The ETFs used in the portfolio are:
Bull: DBA, DBC, DIA, DGP, OIH, QQQQ, SPY, TLT and UYG
Bear: CMD, DDG, DOG, GLL, PSQ, SH, SKF, and TBT

Entries require a Weekly Bongo Yes while Exits require a Weekly Bongo No. Entry/Exit prices used were the Monday opening price following the Bongo signal. No other filters were used.

Here are the results:

Total portfolio gain was 6.04%, excluding dividends, interest, slippage, and trading costs. Turnover for each ETF was a little over twice in the past twelve months, which is low. While such a small gain seems like the Bongo failed with ETFs, it's worthwhile knowing that in the same time period, the S&P 500 Index returned -20.43%, excluding dividends.

So my conclusion is the Bongo Weekly works with ETFs, keeping you out of the market (or short) during bearish conditions and long during bullish conditions. But please keep in mind that past performance does not guarantee future results - just because it worked well over the past twelve months doesn't mean it will continue doing so in the future.

Dave Steckler is an investment advisor at Global Investment Solutions. In 2002 he developed the Alpha Rotation Program (ARP), a long-short market timing system using no-load mutual funds and exchange-traded funds (ETFs). He also trades a portfolio of stocks and ETFs.

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