Friday, March 20, 2015

Is "Whipsawing" HYG Forming a Bearish Pennant Pattern Below Long-Term Resistance?

This week has had its ups and downs for corporate high yield bond ETFs.  As the daily, 1-year chart below appears to show, HYG may be forming a bearish pennant pattern below long-term resistance, which it failed to break above after three failed attempts this week.  Each attempt had slightly lower lows, forming the top of the apparent pennant.  

A pennant pattern is typically a continuation pattern; so from a probability standpoint, the next move is more likely to be down than up when this pattern breaks since the move into the pennant (the "pole" or "flag pole") was down. However, we offer no predictions since anything is possible from here.

Click Chart to Enlarge

Last but not least, HYG also finished the week below long-term support on the weekly chart shown below.  A line which HYG has largely been above since mid-2009.

Click Chart to Enlarge

Last week our "sell" indicators were triggered so we vacated our positions in high yield corporate bond mutual funds, which we held since the third week of December 2014.  We currently have a relatively small (experimental) short position via ticker SJB (thinly traded).

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 in their entirety. The U.S. Securities and Exchange Commission website has guidance on selecting an investment adviser.

Financial Disclosure:
The author/publisher has a small short position in high yield bonds at the time this article was written. This position may change depending on future price action.

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