High Yield Exhaustion

With Treasury yields at historic lows investors have gone after yield in other segments of the market, the high yield bond market is often one of the places investors seek out in that chase for income. Today we are going to take a look at the iShares High Yield Corporate Bond ETF (HYG).

With the rally in equities, HYG has also seen its price rise, taking it back to September and October highs. Many technicians argue the validity of a triple top, but what I want to focus on is the exhaustion that appears to be happening in the high yield ETF. As HYG has gotten near the $93 level we’ve seen momentum, based on the Relative Strength Index (top panel), diminish. Each attempt to make a new high appears to be accompanied by fewer and fewer buyers. With yesterday’s price action taking us just a few cents under the previous level of resistance, the RSI is also a hair below the October level, and well under the September level in momentum.

We can also see that each rally was done on declining volume. When traders take a security to new highs or levels of resistance, they often look for heavy volume to be present. Large volume tells us that there is a lot of demand for shares, which we don’t seem to be seeing in HYG. Instead, each rally attempt has been on dying volume, giving traders less confidence that resistance can be broken.

With that said, there is still some hope for HYG. As I wrote yesterday, this market is currently swaying to the words of Congress. If we get a debt deal then there’s a definite possibility that the $93 level can be taken out and bulls will maintain in control.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

The Fiscal Cliff Runs the Show

We sit just a few points under the 50-day moving average for both the S&P and the Nasdaq as I write this. The market continues to be obsessed with the fiscal cliff. It seems like it doesn’t even require a statement from Obama, Reid, or Boehner to move the markets, a Congressional Page could probably post a Facebook status update and the Dow would shift by 100 points.

While reviewing yesterday’s price action I began to see some very small divergences as traders appear to be shifting a little more towards the defensive/low beta parts of the market, but this divergence is not enough to pound the table on the current short-term rally being over. A bounce to 1420  and the 50-day moving average has not been out of the question and is healthy. Until the fiscal cliff talks are ended, for better or worse, they control each day’s movement, this should be taken into consideration when evaluating a short-term view on the equity markets.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

Elliott Wave Analysis of Emerging Markets – All Star Charts

Elliot wave is a technical analysis tool that doesn’t get much airtime, probably because it’s one of the least understood tools out there. One of the biggest users of elliott wave that I can think of is Paul Tudor Jones, the founder of Tudor Investment Corporation who has a net worth of over $3 billion and is considered by many to be one of the best traders out there.

J.C. Parets over at one of my favorite blogs, All Star Charts, put up a great post today looking at the relationship between emerging markets (EEM) and the S&P 500 (SPY) while incorporating Elliot wave analysis.

A short teaser from J.C.:

I’ve been writing allstarcharts.com for a few years now and I’ve mentioned elliott waves maybe two or three times. It’s rare that we discuss it, because it’s rare to see a pattern that I like enough to bring up. But today I’m looking at a sweet setup in Emerging Markets Stocks relative to US Equities that I can’t possibly keep to myself.

Elliott wave isn’t something I use very often but it’s nonetheless something we should not ignore. J.C. does some great work with intermarket relationships and technical analysis in general. Well worth the read.

Go read the rest: Interesting Elliott Wave Count Emerging (All Star Charts)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.