Posted by: stockscooter | May 6, 2012

High Yield….Low Return

Over the past few years, fixed income investors have been forced into a corner.  If they need yield, they had to take risk to get paid anything substantial.  High yielding bonds have been put in a bubble, along with short-term treasuries, such as tips.  The main point of concern are high yield “junk” bonds, because of their tight relationship to equities.

The Chart below shows a major head and shoulder pattern.  The blue circle on  the left shoulder has a volume spike: the Head has a huge volume spike-Each denoted by circles on price and volume.  The right shoulder has decreasing volume.  This is of fundamental importance in technical analysis of a H&S pattern.  The blue line denotes upward direction on the price chart, yet decreasing volume beneath, shown by the blue downward sloping line. This is a technically weak sign.

Also of note, an impulsive 5 wave down structure from the highs, down to 10.52, is followed by an upward ABC correction.  It can terminate anywhere between now and as high as 14.28.  I expect it to terminate sooner. When it does, the next leg down will commence, which should be greater than the first leg down.  As always, do your own due diligence.

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