Tuesday, November 19, 2013

HYG High-Yield Corporate Bonds Weekly Chart Overbot Negative Divergence Price Extended

Future Fed Chair Yellen looks under the living room rug, nope, nope, no bubbles there. She rearranges the commemorative plates and clown figurines in the china closet to look for bubbles there, nope, none are there either. The dividend stock bubble is highlighted here on an ongoing basis and the search for yield has also driven traders into other high-yield investments. The HYG ETF has jumped from 42 to 93, 51 handles, +121% in 4-1/2 years courtesy of the Fed's money-printing. There is lots of bubble talk in the media these days but the discussion, just like market calls, is meaningless without referencing time frames and a basis for identifying a stock, index or sector as a bubble. Bubbles are different things to different people.  Don Ho would make the ladies swoon singing Tiny Bubbles. Keystone uses technical analysis to identify bubbles. If the longer-term weekly and monthly charts are throwing off negative divergence with overbot conditions this is surely a bubble.

For HYG, the April top resulted in a spank down due to the negative divergence and overbot conditions but note how the RSI printed another peak. So the bulls wanted to see price come back up again for a matching or higher high after the pull back would occur. The drop occurs this summer and price now recovers to the previous price high. Note how RSI is no longer joyous. The indicators are negatively diverged across the board. Money flow is trying to squeeze out some additional short-term momo but the chart is weak. Sure the bulls can move higher, especially if all the Fed speakers this week keep pumping the QE talk, however, gravity should take over as time plays out. The pink dots show the mean reversions occurring when price is too far elevated above its moving averages. High-yield qualifies as a bubble. The trouble would begin as price drops below the lower red trend line at 91-92. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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