I want to start this year with a market I have been watching closely recently, and for good reason. The HYG, which is the most liquid high yield corporate bond exchange traded fund, has taken a beating over the past few months and looks ready to make another move lower. Not only is this trade attractive from a technical perspective, but the fundamentals are on...
I did not monitor HYG closely and thus totally missed the short opportunity. Looking back, I put the timing method on the chart (easier when looking back, isn't it? : -).
You know what they say, one's man's junk is another man's treasure ... . With an IVR of 100 and an IV of 18, this may be as good as junk is going to get for premium selling (don't quote me on that; further sell-off could be on the horizon ... ). HYG Jan 29 74/84 short strangle POP%: 75% Max Profit: $109/contract BPE: ~ (Undefined/After Hours) BE's: 72.91/85.09
Junk bonds are typically just that - junk. But, the iShares High Yield Corporate has been one of those crowded trades that just do not die. After witnessing the immaculate short squeeze from 1,864, the SPX staged an impressive rebound. But as I mentioned earlier today (on my InvestFeed - link below), the SPY is looking weak, and the ADX, which measures trend...
The break down in the long term trend line of HYG/TLT that occurred in December is currently being back tested. If the breakdown holds, this will mean Treasuries are set to outperform HY. Reversing the under-performance of treasuries to High Yield that started in February. A quick move to $88 from current $90.35 on HYG would not be surprising.
What makes anyone think this time is "different." The SPX decoupled from high yield credit (HYG) in 2013 for the first time since 2007. The onslaught of poor US economic data will continue to weigh on equities regardless of the desperation to hold onto the feel good story of growth. I expect a 20 percent pullback to the 200-week EMA at 1,810.
High Yield corporate bonds are breaking down relative to long dated govt bonds. It appears the break down of this 6 yr wedge help accelerate the losses in HYG during last week while helping TLT add to its gains. The bottom trend line of the wedge has been an important support line for this ratio over past several years. With this break down, it seems possible...
Update to chart linked below. In that chart it was noted that HYG had at tendency to bottom at or before SPY during pullbacks. The average since beginning of 2013 was for HYG to bottom three days prior to SPY but occurrences ranged from same day to six days prior. After breaking the rising trend support going back to 2009 the selling in HYG has picked up...
Getting nervous yet? Spreads contract, equities typically run higher and vice-versa. Well, spreads have been expanding and yet equities have surged higher. Small caps have not participated like the SP500. Perhaps one is lying? "Long" spreads expanding. Some reading from the NBER National Bureau of Economic Research: Credit Market Shocks and Economic...
This is a similar chart to that published by Technician (see related idea below) that shows a clear divergence between stock markets and bond markets. I realize after making this chart that I had identified several bearish signals in bond markets at the start of the year, and I thought that we would thereby see a stock market correction in 2014. Stocks are the...
As others have noted, HYG can often be used an indicator for market turning points both to the downside and upside. In reviewing all significant pullbacks since Dec-2012 this seems to hold true. Of 8 occurrences looked 6 occurrences had HYG bottom before the S&P. 2 occurrences showed them to bottom on the same day. Average length for SPY to mark a low after HYG...
I don't have the stats, but you probably know that many S&P 500 companies are using debt as a way to finance its share buyback program. (Yes, I'm talking about you Apple) So these companies are in a triple dilemma. 1. Investors are closely scrutinizing their bottom lines every quarter (Whatever happened to the big picture and the Oracle of Omaha, the Moses of...