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Investors Learn that High Yield Funds are Not Piggy Banks

Stock-Markets / Financial Markets 2015 Dec 14, 2015 - 02:55 PM GMT

By: Anthony_Cherniawski

Stock-Markets

SPX is still challenging round number support at 2000.00. The Premarket shows SPX down, but not yet beneath 2000.00.

The tremors are getting bigger and more threatening as oil tumbles below $35.00 while emerging markets and junk bonds increase their turmoil.


Another high yield domino has fallen. High yield ETFs are already tumbling in the Premarket. The combination of small doors, large crowds and more liquidations are taking their toll.

ZeroHedge reports, “As Bloomberg’s Richard Breslow explains, for investors whose funds are locked up in junk debt and other distressed “assets”, the temptation may well be to tap into money held in funds whose managers eschewed riskier debt for more liquid investments.

In short, prudent managers become the “piggy bank” as the HY gates multiply, meaning investors raising cash end up dumping the good stuff while the redemption suspensions force them to hold onto everything that's bad even as the market continues to deteriorate in front of their very eyes.”

Will that happen to stocks as well?

You may be wondering why Treasury yields are rising this morning. First, it may be due to the observation that the retracement may not be over. Structurally, all of the moves since December 1 have been zigzags. A Wave (c) of [ii] must complete a 5-wave move before the retracement is over. Granted, it may challenge the highs, but the Cycle Top resistance is at 23.56, indicating an expanded flat Wave [ii] may be underway. We could see TNX touch the Cycle Bottom support at 21.09 before the move to the Cycle Top.

Second, what we see in the high yield bond funds is a bid for cash. Those investors simply want out. Where it get reinvested appears to be a secondary concern.

Crude futures hit a low of 34.54 this morning before bouncing back to 35.41 where it currently resides. This is beneath Cycle Bottom resistance at 35.65, so crude remains bearish. Unless it rallies above that level, the Cycles Model suggests a continued decline through the end of the year.

Regards,

Tony

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Anthony M. Cherniawski, President and CIO http://www.thepracticalinvestor.com

As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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