Do you look at the trend of high-yield bonds alone or do you look at the spread between high-yield bond returns and T-bond returns?
Trend alone. I have read something about the spread, I think it was in Gary Smith's book. Basically, when majority of the funds move up 10-15% from the high or low, it signals the change in trend in the equity market. Most of the funds made the low in 2002 October. By March 2003 the funds were up 10-15% from the low. This was a signal to get long. Now I'm looking for the funds to be down 10-15% from their high(only look at data from 2003), that will tell me that the trend is changing. Till then I'll buy on pullbacks. Do yo look at the spread between junk return and t-bond returns? If so, what have been your experience-- I'd love to hear. Thanks.
I don't look at the spread but I think it could be useful, because it helps determine whether the lower high-yield prices are the result of changes in market rates or the result of credit problems. If overall rates are turning higher (prices go lower) it is possible for the stock stock market to make new highs for months. My guess is that is less likely if credit quality is waning.
Intersting. I will try to read more on the relationship between the yields and the effects. Right now I'll just follow the price action.
I do not really use EW but I like the concept. Although 65 WMA acts as a major support, I do not think that prices will come down to that point. If the market starts going higher from here, 13 WMA will act as a major support. This is in EW terms the 5th wave. We are just getting started. We might see a similar move from here like we did from April 03 to April 04. After it is all said and done, we might see SP around 1800.
Although IWM has underperformed SPY in the last few days QQQQ has been looking very strong. The bonds made a 6 month high today. It just tells me that the market is not worried about inflation or another rate hike. It looks like most of the money is moving into Tech stocks. Will look to buy QQQQ on any pullbacks.
Exit: Strategies: One of the exit strategies is the 1% true Selling day and the other one is the break of 2 week Low. The break of 1380 in S&P, will make me go into cash. Then I'll just wait for the market to come down to the 65WMA to go long again.
Today was a true selling day. All the indexes down more than 1%. Exited out of my SPY long. Will not take any signals till next week. Need to see how this week plays out. Basically what I am looking for is SP to close at or slightly below 13WMA on Friday. Next Monday if there is no selling in the first half hour, I'll look to go long.
Here is what I see: The economic fundamentals appear to pointing to an overheating economy. 4.4% unemployment 82% capacity utilization Increasing wages, income and AHE. Low real rates of interest High PCE (personal consumption expenditure ) core deflator, the fed's preferred measure Declining Energy prices Consumer spending 3.1% Housing starting to bottom (Not fully convinced) Based on these factors, I do not see the Fed lowering interest rate anytime soon. I would not be surprised if they raise rates in the future. I do not trade bonds or currencies but I would like to be long bond yields and long USD, preferably USD/JPY. Still bullish on the stockmarket. Waiting for pullbacks on weeklies to enter long.
Even though there was some follow-through sell-off this morning, the market was able to bounce back. Since yesterday's decline was the biggest in last four months, I will still wait on the sidelines. The other thing that was less convincing regarding today's bounce was that the IWM and QQQQ underperformed SPY. We might see some selling tomorrow. If the market helds up tomorrow(11/29), I'll look to enter long at the close with a stop below 2 day low.