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High yields have been GREAT assets to own when above key moving averages as well as a decent leading indicator for the stock market. A few leadership examples…high yields peaked in 1998, before the broad market started its decline from 2000 to 2003. They started heading lower in 2007 before the broad market and put in a low in the fall of 2008, before the broad market did in March of 2009.
In the 6-pack above, for the first time in months, high yield funds have each broken below their 50-EMA lines and broken rising support. The decline has been small so far, around 2% off their highs, yet price action that should be respected to say the least!
Since last December the high yield funds have crossed below the 50-EMA, yet did not break support. With the steep support line breaking, they are sending a “note of caution” to the equities market place, that hasn’t been sent in months!!!
Len…great comment and yes I do. For sure the payment has it impact, which considering it, lessons the decline for sure. With the NAV below last months payment, it does mean a slight decline in capital has taken place. This is why I use a three moving avearge set on the high yield holdings. The faster term EMA took us out of a third, still own some high yields based upon longer term averages, just not as many.
I’m sure you take into account price action of interest paid out yesterday as well, right.
Scott… I would “at least take a third off the table” at this time…that is why I am showing that breakdowns are taking place. The long-term moving averages took us into the market back in May of 2009. If someone has not been in that long and doesn’t have some large gains, I would pull exposure down to the 40-50% range.
I’m also scaled in by thirds, but still in all three thirds. It has been my intention to follow you out. Do you plan to post about your subsequent exits here (if and when you do)?
I run a high yield portfolio based upon thirds, using a slow, medium and fast moving average. I reduced a third of the holdings around a week ago and other changes will be made on the remainder of the holdings soon.
Chris, you didn’t mention: in light of this action, are you sticking with your high yields position or starting to reduce your exposure?