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Showing posts with label HYG. Show all posts
Showing posts with label HYG. Show all posts

Monday, August 5, 2013

Elliott Wave Analysis of HYG

Looking at high yield bonds both JNK (junk bonds) as well as HYG appear to be tracking each other nicely

Its interesting to note the large divergence since the beginning on the year with stocks, it might be the case that many are selling high risk bonds to move back into stocks.

With the US bonds market poised to break down, that theme would make sense, that traders/investors are dumping bonds full stop and moving into stocks. (A sign of capitulation from the public/investment fund mangers)?

However that would further confirm that the public has probably just decided to "jump in" at a potential peak in stocks. (That thesis supports my ideas of a major peak in stocks, see below)

If high yield bonds are actually suggesting that traders are getting cautious, then we have 3 possible themes.

1. Traders/investors are finally selling bonds no matter which type and jumping into stocks and finally capitulated and want in on the stock market rally (the public generally tends to be the bag holder at a peak), so its a potentially clue to a market that is getting very frothy and setup for a major peak. (my preferred idea)

2. Traders/investors are selling risk ie risky bonds and probably moving back into safety, if that were the case, the likely place i would be looking for a clue would be in US treasuries, so we would need to keep an eye on US treasuries for any sign that $$$ is shifting back into safety and out of risky assets such as junk bonds and stocks. so based of these charts, some traders are ahead of stock traders.

3. The US stock markets are the place to be and we are going to see a rotation out of US treasures (which has happened so far this year) as well as high yielding bonds and we are going to witness a period of "growth" in the US much like we saw from the 1994-2000 and the US stock market has much much higher to go.

My personal feeling is that whilst the stock bulls have been right the 1st half of this year, if risk markets get sold, i think stocks will follow high yield junk bonds lower.

If traders are dumping risky bonds, that $$$ has to go somewhere, so its worth watching the safety asset classes such as US bonds and the US$ for clues.

However those that have been watching the US$ will note that the dynamics have changed, the US$ is no longer a safety currency, it appears to be getting support as a "growth" currency, which has changed the dynamics in investing in the US. Hence what was once the "normal" has changed considerably the past 6 months.

Getting the theme right from here is going to suggest the next LARGE trade.

Those that have predicated doom and gloom for the US$ have failed to take on board the material shift that we have seen in the US since the begging of the year, in both the US$ and US stocks.

Long term HYG apears to be poised to push lower, off the yearly highs it has declined in a smaller 5 wave decline, and so far bounced in 3 waves.

Staying below the yearly highs suggests a setup to move lower and a move that could potentially suggest under 85.00.