High yield mutual funds often times give quality leading signals to the what the stock market is going to do.
Last summer and fall I shared two examples where the high yield funds were reflecting “relative strength” which was suggesting higher stock prices were to take place. (see post here)
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High yields bottomed first in 2008 and reflected relative strength in July of 2010 in the chart above. In the chart below, on a very short-term basis, High yield funds have struggled at their 150EMA lines and are creating a small series of lower lows, while stocks are not.
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Little clues can mean a ton, when the markets are trapped in flag/pennant patterns. Keep an eye on the high yield funds and watch for weakness in Freeport/Copper per a breakout/breakdown from the global flag/pennant patterns that are at hand.
Dublin…agree that a properly constructed ETF should track and most do an awesome job. It is easy to show that JNK/HYG swings more than the funds, can compare at yahoo finance easily and see it. When using some EMA’s to make ownership decisions, the pricing on the funds works better for investors I have found over the past 15 years….numerous false signals are given on the ETF’s than funds.
Thanks.
Helps a lot.
Brings up an followup question.
I have read that IF an ETF is constructed properly price should just track the underlying and NOT be subject to volume pushes. In fact in this view volume is irrelevant and deceptive… I know quite a few traders use volume on etfs as they would an index or stock and I have always wondered which is the correct thinking. (excludes 3x and oddball etfs which use derivatives to track an index)
Thanks again.
Dublin…Great question. I have found that the ETF’s to be more volatile than the funds. I suspect they get pushed around by volume, which the funds can’t be. I like scaling into the high yield funds, based upon several EMA lines. The ETF’s, using the same lines, have given many false buy and sell signals over the years.
Hope this helps a little,
Chris
Is there a reason (other than when seeking a longer lookback prior to ETF origination) to use funds vs. JNK or HYG?
Thanks!