Wednesday, January 20, 2016

High Yield Corporate Bond Funds: Anatomy of a Crash. A Comparison of 2008 to Current Conditions

Out of curiosity, I thought I would take a look at the 2008-9 chart patterns for corporate high yield bond mutual fund NHINX, which I like to use as an indicator for corporate high yield bond funds in general, and compare these patterns to what we have seen thus far in 2015-16.  

Here is what I came up with using a daily closing price chart:

click chart to enlarge

I don't have too much else to say beyond the annotation on the chart itself.  Not exactly the same, but there are some similarities (like it or not). 

  • Both declines started with a falling wedge pattern (slippery slope phase) that broke downward into a near vertical decline (free-fall phase) - thus far anyway for 2016. 

  • The various highs and lows (reaction points) in the wedges also tend to show the same general pattern.

  • The slope of the crash/free fall (if 2015-16 is one) seems to begin within the wedge starting after the last test of resistance (upper part of wedge).

Also note that in 2008-9, the RSI (upper part of chart) was way lower than it is today.  So based on history, high yield bonds can become much weaker (or oversold as may be the case) than they are now.  Also note that the 2008 price low did not occur at the lowest RSI - the lowest RSI occurred before the lowest price.

Also if you compare this chart to HYG, you will see that HYG's low occurred in 2009 (along with stocks), while NHINX (and all the other corporate high yield mutual funds I know of), occurred in 2008.

Please remember that this is not investment advice. You alone are responsible for your investment decisions. See disclaimers below and elsewhere on this website.

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 no position (long or short) in corporate high yield bond funds at the time this article was written. This position may change depending on future price action.

Base Chart Provided Courtesy of  Analysis and Annotation by JunkBond (all rights reserved)

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