Friday, April 25, 2014

HYG High-Yield Corporate Bond Fund Weekly Chart Upward-Sloping Channel Rising Wedge Overbot Negative Divergence Upper Band Violation

If in high-yield, it is time to run for the hills. High-yield instruments remain the darling of investors but the weekly chart shows that this bull parade has gone on long enough. The red rising wedge, overbot conditions and negative divergence (red lines for the indicators) all want to see a spank down and lower prices moving forward. In addition, price continues to violate the upper standard deviation band which will require a move back to the middle band, the 20-week MA, under 93, at a minimum. Price is at the upper rail of the blue rising channel so a move to the bottom of the channel at 92 is easily in the mix as well as a move down to 90-91 the bottom band.

Big shots like Warren Buffett continue to say there are no bubbles in markets. High-yield is a bubble about to pop. Corporations may have lots of cash, that is being used for buybacks, however, they have taken on huge debt as well and the net effect over the last few years is indebtedness so do not let the numbers fool your eyes. A corporate debt crisis can very likely provide the fuel for the next financial crisis that may only be a stone's throw away. Watch your wallet.

The bears were ripped off last summer with the indicators wanting lower prices to continue after the May 2013 top in high-yield but the Fed's easy money is too powerful. Note the volume dropping off ever since the top early last summer. It is time to play 'Taps' for HYG and high-yield instruments. This may sound like blasphemy since high-yield has provided the mother's milk of higher markets over the last couple years but all good things come to an end. HYG can be shorted moving forward. Keystone holds SJB on the long side, an inverse ETF that moves opposite of HYG, so obviously the SJB chart is the mirror image of HYG above showing a falling wedge, oversold conditions and positive divergence looking for a bounce and multi-month recovery (caution is required since SJB is thinly traded but there are many ways to short the high-yield area including options).

Projection is for high-yield to roll over and move sideways to sideways lower for the weeks and months to come. 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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