We never base investment decisions on new stories. Why? The following is an example why.
The CNBC news story published on June 25, 2013 entitled "Junk Bonds Suddenly Don't Look So Good Anymore" painted a potentially negative outlook for corporate high yield bonds based on a sharp sell-off. This story may have motivated some investors to sell due to fear of a continued sell-off in response to rising interest rates resulting from the federal reserve's backing off on quantitative easing (economic stimulus).
When this story came out, the daily chart extending back to about April 2012 for corporate high yield bond fund AHBIX (for example) looked like the one below. As shown, the price dropped from $10.80/share on June 6, 2013 to $10.26/share on June 24, 2013.
(Click chart to enlarge)
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AHBIX chart: daily | semi-log |
A technical analysis of the same chart below shows that the sell-off starting at $10.80/share occurred after the price of AHBIX encountered significant resistance (red line), and that the decline occurred down to multiple (six) levels of support (blue lines) at or near $10.26/share.
(Click chart to enlarge)
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AHBIX chart: daily | semi-log |
Further technical analysis on the same chart below using Bollinger Bands® (a registered trademark of John Bollinger) and Relative Strength Index (RSI) shows that AHBIX was overbought at resistance ($10.80/share), and was oversold at or near support ($10.26/share).
(Click chart to enlarge)
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AHBIX chart: daily | semi-log |
On the day the story came out (June 25, 2013), AHBIX dropped another $0.06/share to $10.20/share before starting a rally as shown in the chart below. Currently (April 24, 2014), the price of AHBIX is at $10.60/share and appears to be breaking above upper channel resistance.
(Click chart to enlarge)
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AHBIX chart: daily | semi-log |
Our experience has been that news stories often contradict chart stories. So we ignore news stories since tracking actual price performance using charts and technical analyses is a more direct and logical strategy.
Using multiple technical lines of evidence, we look to sell at major resistance and overbought conditions (e.g., $10.80/share) as a means of protecting gains, and we look to buy at major support and oversold conditions (e.g., $10.20/share) as a means of protecting the initial investment and generating gains.
Using multiple technical lines of evidence, we look to sell at major resistance and overbought conditions (e.g., $10.80/share) as a means of protecting gains, and we look to buy at major support and oversold conditions (e.g., $10.20/share) as a means of protecting the initial investment and generating gains.
Not Investment Advice | Important Disclaimer:
The content in this article, including the identification and discussion of any specific security (e.g., bond fund), is NOT meant to be and should NOT be construed and/or used as investment advice. This article is for general information and educational purposes only. Please read the Disclaimers for junkbondrecycling.com in their entirety. The U.S. Securities and Exchange Commission website has guidance on selecting an investment adviser.
Financial Disclosure:
The author/publisher owns shares of AHBIX and other corporate high yield bond mutual funds.
Financial Disclosure:
The author/publisher owns shares of AHBIX and other corporate high yield bond mutual funds.
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