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Last fall when investors were way too bearish and running for the hills, driving the VIX sky high and piling into cash (see post here), high yields were reflecting relative strength and the Power of the Pattern was suggesting that this set up was a good sign for the stock market! (see post here)
Since the late 1990's, high yield mutual funds have been an awesome barometer to what equities could do in the near future. I wanted to bring this up due to a couple of situations in the high-yield complex right now.
A couple of observations from high yields...of late, they continue to reflect relative strength, as they have outperformed the S&P 500 by almost 5% in the past 90 days (see inset in above chart). They are now facing a key test of resistance at (1). If the message from the high yields is a good barometer....they need to start reflecting relative weakness before the stock market is in real trouble!
If you are an investor that wants to load up on short positions and make money from a stock market decline, you might want to see some proof/weakness from the high yields before betting the farm on a huge stock decline.