Courtesy of Doug Short.
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High yield mutual funds can be of great value for helping investors dial up or down risk. Last summer/fall when stocks were in a sideways trading range and sentiment was very bearish, high yields were sending a rather unique message. As stocks were creating a series of lower highs, high yield funds were doing the opposite, reflecting relative strength. This relative strength highlighted last year (see post here) in the chart below, was suggesting to “dial up exposure to stocks!”
This isn’t the only time high yields have been a good leading indicator, check out last week’s 12-year study on how high yield funds have been a good tool for the task of deciding when to increase or decrease exposure to the stock market (see post here).
What it the message now coming from the high yield complex? Relative weakness! The high yield fund 6-pack below reflects that the majority of these high yield funds are falling hard, breaking below where they were last summer when they were giving an “increase risk exposure” message. High yields don’t have a perfect track record. But at this time, until prices turn up, they are suggesting that stock market rallies are counter trend.
(c) Kimble Charting Solutions
blog.kimblechartingsolutions.com
