US Junk Bonds Giving New Sell Signal Setup - see entry rules

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October 2015 Update:

The magnitude of the decline still isn't that great here, as the trend turned down in September with HYG at a little over 91. It is down to 85.11 (and HYG has paid monthly dividends of roughly 40cents for 12 months now, so they are really at a small 1 point or a 1% loss right here). Still, when risk taking earns you a loss after 12 months, it certainly means there are no profits to distribute (and spend in the real economy) and boost the mood.

When HYG is lagging behind the return on US Treasuries (use TLT , and see link below on the ratio of HYG/TLT), then it is another sign that investors are running for safety.

Now that CCI , a simple price oscillator , is above +100, which is similar to a 1 standard deviation move above the 11-day average, it means that the price is overbought and since we are in a downtrend, you want to sell short on a violation of a previous day low. The setup is that we are overbought in a downtrend, but the ENTRY STRATEGY is that we break under a previous day low. It requires both steps to enter a trade. If the market continues higher, we are waiting to sell at higher levels.

The downtrend will take awhile to reverse since we are about 5 or so "ranges of trading" away from turning trend up. What does "Ranges Of Trading" mean? If the market traded up by an average range every day for 5 days, then the trend would turn up. That's a rough way to explain it. Either way, don't confuse a "sell set-up" with an "entry". You can certainly use your own indicators to enter the market on the short side here and I'll do my best to follow up when this signal triggers. Feel free to send your entry signal here and we can all monitor how we are doing collectively.

Lastly, if you short going under the low of the previous day, the stop is the high of the rally. The exit is when CCI reaches -100 and/or a trailing stop using the 3-day range. My latest simple method for getting out is to use the 4-day moving average of the closes and if that increases, then cover.

All the best,

Tim 8:10AM Sunday, October 10, 2015 85.11 last HYG
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Signal working.
Thanks Tim
Excellent breakdown, very effective technique.
I'll check out that 4 period ma.
+1 Reply
can Bond chart alone justify risk on and risk off?
my monthly XLY/XLP doesnt seem so
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