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?
Knight…. Viewers of the blog can sign up for RSS feeds and other types of feeds, which should send a message about new posts hitting the blog. I hope this helps. I very much appreciate this email and am honored that you and others find the “Power of the Pattern” of benefit.
Why is there no way of subscribing to post via email. If you could add this feature I am sure you would increase your readership many fold. I think your ideas are great but would love it sent to my inbox so I can then click on the links i am interested in.
Ultron…. We sold all holdings in the high yield funds on a break below the 200-EMA. The Crossover idea is to assist investor of when greater equity risk comes into play and at this time the Sell signal is suggesting a larger established signal to make sure long term investors have raised cash. Could a “rally back” as you say take place? FOR SURE it has and will from time to time.
Patterns suggested last Monday in the 50/50 challenge post, that the odds were high a rally would take place. I mentioned the 500 index had been a “Dog” this month, yet it was due to act stronger (See post here) I have shared several times in the past two weeks, investors became too bearish and that the broad market should move HIGHER. Premium members due to this situation sold all shorts and moved back to the long side. We have specific plans and price targets for our longs and the targets are getting close!
Going back to the high yields…did high yields and the broad market rally sometimes after the sell signal? The answers is a clear yes! Counter trend rallies have taken place in the past and will in the future. As in the past, after a large decline the high yields became a great place to be and sometime in the future, I will want to own a good stake in them again!
Thanks for your viewership and this comment…much appreciated,
Chris: there is usually a rally back to resistance after the crossover. Is that what we are seeing now?