Tuesday, August 6, 2013

High Yield Bonds Suggest a Top

HIGH YIELD BONDS SUGGEST A TOP (Jeepers; not another one!)
Chart from Yahoo Finance (annotated by NTSM)
The above chart recognizes that the Bond market can sometimes be a leading indicator for the stock market.  In this case, the chart is a plot of the TR Price High Yield mutual fund, ticker symbol TYHYX in Blue and the S&P 500 in Red.  High yield bonds tend to trade like stocks, because they are sensitive to economic conditions.  Most bonds normally trade opposite to the stock market, but that really depends on interest rates.  (Many analysts are concerned that we may see bonds and stocks fall in tandem during the next crisis.)
It is apparent in the above charts that the High Yield fund has been leading the S&P 500 by a few weeks over the past 6-months or so.  What is also apparent is that the High Yield fund has been falling since the 3rd week in July while the S&P 500 has moved to new highs.  High Yield bonds are suggesting a top.  (BTW…I have called 5 out of the last 2-tops.  Bad joke!  This has been a tough market.)
“A battle in Congress expected this fall over the budget and a potential government shutdown broke out early on Thursday as Republicans in the Senate effectively killed a $54 billion spending bill for transportation and housing projects.”  Full story at…
“As trading volumes and market volatility hover at the lowest levels of the summer, in this "dull" market it is very hard to make money right now, said Art Cashin, director of floor operations at UBS Financial Services, on CNBC.  Of "all the old talk about what you do and don't do in a dull market, one of the things you do is stay away from it, basically," Cashin told "Squawk on the Street" Tuesday. "There's very little money to be made."  Story and Video at
Tuesday, the S&P was down 0.6% to 1697 (rounded).
VIX was up more than 7% to 12.72.
The S&P 500 is still more than 10% above its 200-day moving average and that is a point at which corrections frequently occur.
The 10-day moving average of stocks advancing on the NYSE is 44%.  Usually a value below 50% signals additional trouble for the markets.  Only 25% of stocks on the NYSE were advancing today. 
New-high/new-low data is now decidedly down as the new-lows exceeded new highs today.  There were 183 new-lows on the NYSE Tuesday; that’s the highest in about 6-weeks.
Overall, “Internals” remain negative (and suggest further downside),
Tuesday, the overall NTSM analysis was HOLD at the close. 
I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!) 
I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.
I am committed to this course of action for some time.  Now; I think I just need to be committed!