GLD v Junk – Time Horizons for Investors (HYG)

Discussion in 'Trading news and analysis (syndicated content)' started by Oakshire Financial, Jun 14, 2013.

  1. Oakshire Financial

    Oakshire Financial syndicated content Official Contributor

    While the current administration in Washington is getting its head bashed in by scandals that drop heavier one day after the next, and

    The Nikkei gets its head bashed in with sledgehammer selling that appeared out of the blue and is continuing, relentless, day after day, and

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    Facebook stock gets its head bashed in for a) not doing ‘mobile’ well enough, or b) teaming up with big government to spy on its users, or c) losing its hold on the teeny-bop social networking crowd, and

    The Midwest gets its head bashed in (Lord have mercy on them) by some of the most severe, persistent and damaging storms in the history of the land, and

    Silver, the runt of the precious metals litter, gets its head bashed in for an unbelievable 26 straight months

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    While all of this headbashing is going on, what do you suppose is happening to the world’s favourite and most widely quoted stock market index, the Dow Jones Industrial Average?

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    Well, well, well, sister Angelique… whassup?!

    Absolutely Nothing!
    That’s right, nothing.

    The DJIA has been in a solid uptrend since mid-November of last year. It’s climbed 24% over that time, and we have absolutely no reason to believe it’s about to stop now.

    Take a look at a year’s worth of the Dow –

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    And so it has to be.

    We’ve fallen back to the low end of the trend channel that marks the latest intermediate trend rise for the index (red lines), and though we’ve seen three full weeks of sideways action since the last top, the old mother of ‘em all is still holding her own.

    Nor do we believe anything untoward will happen to the Dow or the S&P 500 or NASDAQ going forward until all the juice has been drained from the jug.

    And that’s still a ways away.

    Examining the Indicators
    One of the reasons we believe the uptrend is getting ready to resume is the recent action of the high yield (junk bond) sector.
    There, we like what we see.

    Here’s a chart of the iShares iBoxx High Yield Corporate Bond ETF (NYSE:HYG), a reasonable proxy for the class as a whole and one of our favorite investments of the last five years, to boot.

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    After pulling back 4.8% from its bull market high on very strong volume (in blue), HYG is now resting comfortably on its long term (411 day) moving average (circled, in red). This is the first time in seven months it’s tested support at that level, and because the drop also brought us into contact with RSI 20 (black square at bottom) – a deeply oversold reading – we’re confident the move is now complete.

    There’s little doubt in our mind that this bodes well for the Dow.

    A Stealth Bull
    As for all the headbashing we documented above, we’ll keep our commentary brief – it’s the perfect backdrop for a continued rise in equities.

    Don’t listen to the uber-bears who opine that all the media noise is actually something worth listening to, and that it portends the imminent demise of equities. Nothing could be further from the truth.

    As we’ve repeated in this space all too often, the bull market will remain in force at least until it kicks the Boehners and Clintons and Snowdens and Bilderbergs off the Drudge Reportand takes pride of place above the banner there.

    Until then, you’d do well to consider a long bet on the above mentioned high yield ETF. Not only will it gain with the rise in equities, it also yields a very sweet 6.22% annually, and for conservative investors (yes, you heard that right), HYG may be among the best places to park money for yield.


    Flashback
    We close with a word on a letter we wrote back on January 31st of this year called Gold and Bonds Facing Oblivion. There, we warned against any new positions in gold and pushed strongly for the wholesale liquidation of Treasuries from all portfolios.

    The trend, we argued, was down for both assets. And while we were met with a near unanimous wall of disagreement (please click on the link to read reader comments), we were right in the end.

    We bring it up now not to gloat – though TLT is down 3.5% and GLD is off 17% since then. Rather, we want to restate emphatically the need to be free of all Treasury investments and bond funds, except for the high yielders.

    As for gold, after two years in money-Alcatraz, gold may have done its time – at least in the short term – and we want to suggest that a bump higher would not come as a surprise.

    Look at the chart –

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    There are no sure bets in this business, but a long CALL on GLD hasn’t looked this good since the fall of 2008.

    Many happy returns,
    Matt McAbby, Senior Analyst, Oakshire Financial

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