http://finance.yahoo.com/q/bct=my&s=PRHYX&l=on&z=l&q=l&c=null&ql=1&c=%5EGSPC
High Yield Bonds tend to act like stocks since they are
sensitive to economic conditions. Junk
bonds fall as the default risk of issuers increases. While they are not immune to interest rate
hikes (that lower bond prices), they are considerably less sensitive to
interest rate fluctuations than most bonds.
So if junk bonds act like stocks, what can we glean from
the above chart that shows the performance of the TR Price High Yield Fund (in
blue) vs. the S&P 500 (in green)?
First, in 2007 the stock market peaked when the S&P 500 outperformed
junk-bonds by about 55%. We find similar
results looking at charts from the dot-com crash. At the top in September of 2000, the S&P
500 outperformed junk bonds by about 75% before the S&P 500 collapsed.
Currently, the S&P 500 is outperforming junk-bonds by
about 70%.
A second point has to do with duration of recovery and we
only need to look at the plot of the S&P 500. The time from the low after the dot-com bust (September
2002) to the high before the financial crisis was 5-years. Projecting forward from the last major low in
March 2009 would put the next top in March 2014. (Historically, the duration of
bull-rallies in secular bear markets has only been 26-months on average from
1907 to 2007, but they didn’t have an activist FED in the “old” days. For Market History see the NTSM blog at...
Junk bonds and stock market history are suggesting a
major top…possibly within the next several months. What is currently missing is a catalyst for
the downturn.
JOBLESS CLAIMS UP LESS THAN FORECAST (Bloomberg)
“Applications for unemployment benefits climbed by 15,000 to 309,000 in
the week ended Sept. 14 from a revised 294,000 in the prior period, a Labor
Department report showed today in Washington. The median forecast of 53 economists surveyed
by Bloomberg called for an increase to 330,000…“The labor market is genuinely
improving,” said Brian Jones, senior U.S. economist at Societe Generale in New York. “Even if they’re working through the
backlog, these numbers seem to have a little bit more behind them than just
processing problems.’” Full story at…http://www.bloomberg.com/news/2013-09-19/jobless-claims-in-u-s-increased-less-than-forecast-last-week.html
There were issues again with the reporting of the claims data so the numbers are somewhat suspect.
NO FED TAPER
MEANS SIX MORE WEEKS OF SUMMER (Business Week)
“The Federal
Open Market Committee defied widespread forecasts that it would announce the
beginning of a cutback in its $85 billion-a-month purchases of Treasury and
mortgage bonds. The reasons: The economy is still too weak, and inflation remains
below the Fed’s target….The only dissent came from Esther George, president of
the Federal Reserve Bank of Kansas City, who “was concerned that the continued
high level of monetary accommodation increased the risks of future economic and
financial imbalances and, over time, could cause an increase in long-term
inflation expectations”…The next chance the FOMC will have to cut back
bond-buying comes on Oct. 29, the start of its next two-day meeting.” Story at…http://www.businessweek.com/articles/2013-09-18/no-fed-taper-means-six-more-weeks-of-summer
MARKET REPORT
Thursday, the S&P finished down 0.2% to 1722 (rounded) at the close.
VIX fell 3% to 13.16.Thursday, the S&P finished down 0.2% to 1722 (rounded) at the close.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks
advancing on the NYSE was 61% at the close.
(A number above 50% for the 10-day average is generally good news for
the market.)
New-highs outpaced new-lows today, Thursday,
leaving the spread (new-hi minus new-low) at +313 (it was +288 Wednesday), with
the 10-day moving average of change in spread positive.
The Internals are positive on the market in
the short term.
NTSM
Thursday, the overall long-term NTSM
analysis remains HOLD at the close, but indicators improved and may actually
turn positive on the market. The last
BUY in my NTSM system was on 1 Feb 2013. (That has to be a record for the longest
period without a BUY signal.)
Volume is positive on the market while other
indicators are neutral.
MY INVESTED POSITION
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.
