High yields can often be a great leading indicator for the stock market. Many investors use long-term moving averages to make buy and sell decisions. The chart below represents 6 different high yield mutual funds with popular moving averages applied.
CLICK ON CHART TO ENLARGE
The 50EMA/200EMA crossover doesn’t have a perfect batting average, yet the crossover hasn’t done too bad over the past few years.
Consider the following…. A crossover sell signal took place back in July 2007 (suggesting equity weakness was ahead) and a crossover buy signal took place in June 2009 (suggesting equity strength was ahead). Now for the first time in 4 years, moving average crossover sell signals are taking place!
With this crossover taking place and the Shanghai breaking a 20-year support line of late (see post here) should investors keep long-term monies/401k monies fully invested/exposed to risk?