Last Friday I shared the 3-pack below…reflecting the following- NDX 100, Mid-Cap’s and the 500 index were on short-term support and the VIX was hitting falling channel resistance that often had reflected the VIX was overextended to the upside.
For aggressive short-term traders, this situation looked to be a good entry point to go long….with clear cut lines in the sand to close positions out should support not hold.
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Why did I mention Short-term investors? Keeping an eye on big picture/Macro leading indicators is important too!
3 of the 6 high yield funds below have now broken below their 200-EMA lines, with the other 3 very close to doing the same.
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The majority of these high yield funds DID NOT BREAK BELOW THEIR 200-EMA lines in 2010…This is a macro event to respect and keep an eye on, suggesting that “Capital preservation” remains very important portfolio construction message!
With the high yields reflecting weakness not seen since 2007, should the NDX & MDY break back below their 2007 highs, odds favor the downside action will be very large!
I see that the HY funds are near their 100-day EMAs, not 200-day. We watch VWEHX (Vanguard’s fund) as it has a long history and smooth curve. Agree with all your notes: HY is a great proxy for stocks with much less volatility.
Belsha…Pioneer did for sure! I look at that fund differently due to the fund has style drift, per it invests part of the fund in “convertible bonds” which gives it more movement in both directions. It is not as pure of a high yield fund. Why do I look at multiple high yield funds? Just in case of style drift as Pioneer reflects and to make sure I not watching one fund that for some odd reason isn’t reflecting the true prices of the high yield market.
P.S. Good eyes…Touchstone closed below the 200-day for “one day!”
Looks to me that the Pioneer and Touchstone funds did break their 200EMA for a short time in the summer of 2010…
Denis…High yields are breaking down, which I respect a ton. I use them as conservative equity replacement asset and a leading indicator. From a long-term angle, the high yield price action suggestion caution/protection…I suggested long-term investors move to cash some time back… I am NOT saying we are in a bear market, I am not into labels, yet even if we were in a major downturn, rallies do take place during downturns and that is what is possible where, with the NDX and MDY testing their 2007 highs. Put to Call ratio is now as HIGH AS IT WAS IN OCTOBER of 2008! What do rallies/bounces often times take place? When tons of people have placed their monies on the short side…betting they are going to get rich on a huge decline.
So is your thought that the high yields break down and we get a bounce in the markets, then to follow the S&P will contineu to turn down after the bounce? And the markets will continue to turn down?