Leveraged ETFs: Idiotic or Calculated Risk

The general consensus regarding leveraged ETFs seems to be that they’re a horrible idea. Common criticisms include the high management fees and volatility decay, which are both valid concerns. That being said, I want to know what’s wrong with the following strategy. I don’t think I’m a genius who found an infinite money glitch, but the standard leveraged ETF critiques don’t cover this scenario so I want to hear why the following strategy isn’t sound.

Using a Roth IRA to hold 50% UPRO (3x leveraged S&P500) and 50% SPYM (S&P500). At the end of every month contribute $625 (or however much in order to max each year) to whichever is underweight or split if the account is still balanced. Then sell shares to rebalance under the following conditions:

1. If UPRO is below 50% of portfolio value sell SPYM and buy UPRO to achieve 50/50.
2. If UPRO is above 60% of portfolio value, sell UPRO and buy SPYM to achieve 50/50.
3. Else (if UPRO is 50-60%) do nothing.

The idea is to load up on the leveraged ETF when markets are down, and the asymmetric rebalancing bands are meant to let a bull market run a while before rebalancing. The 3x leverage or even a 2x leverage alone seems to take a while to recover from dips but monthly deposits and rebalancing help tremendously.

I agree that in a choppy market it will underperform the S&P500 but my bet is that a bull market will eventually happen and when it does earnings will make up for this loss. Backtesting shows that with a 40 year horizon the expected value is much higher than a non-leveraged strategy.

The main reason I can see to avoid this strategy is that the drawdowns would be awful (>70% in a 2008 level crash), and a sideways market would be painful as well. Volatility decay exists but in a bull market it works in your favor. Again, even backtests starting just before the dot com bubble or 2008 crash the returns pummel the index alone. So psychologically it would require discipline but as far as I can tell if you stay the course it should catch up and eventually crush a non-leveraged strategy. Not dismissing the difficulty of staying in when your fund is evaporating but I want to check if my math saying that you can expect a recovery is right or not.

What am I missing? I read about things like Hedgefundie’s Excellent Adventure but don’t want to make bets on the direction of bond yields and stocks, I’d rather have a simple bet that the market as a whole increases, leverage that position, and have funds to rebalance with during bear markets. Is this genuinely idiotic or is it just a higher drawdown than most can stomach?