HYG hit a 55-day low today, which is a signal to sell both UPRO and TNA. I did that; so I will use the prices I got. The system had 458.5 shares of UPRO, which had been bought for $87.88 on 3/11. The sale price of $86.50 fetched $39,660. There were 382.9 shares of TNA in the portfolio, which were bought for $105.22 on 3/11. They fetched $95.5, which raised $36,566. Added to the $40,293 in cash, the portfolio total comes to $116,519, a loss of 3.61% on the trade. It will stay in cash until there are buy signals.
HYG closed today at $85.73. When HYG hits a 20-day high, currently at $87.32, that will be a signal to buy TNA and UPRO. As long as T-bonds keep falling in price, however, HYG is unlikely to hit new highs. Credit spreads are already very narrow. HYG has a yield of about 4.85%, while the 30-year T-bond yield is at 2.47%. The average duration of HYG bonds is less than 5 years, but that is a tight credit spread. For HYG to rise in price, I think that T-bond yields will have to decrease.
As I noted last week, junk bond prices have been a very valuable indicator of the direction of stock prices in the past, because they indicate (I think) whether credit is tight or loose, and whether sentiment is risk on or risk off. But, currently, HYG is reflecting a general increase in interest rates. There is no widening of credit spreads that I can see. An acceleration of inflation, and a rise in interest rates will eventually negatively impact stock valuations. Also higher interest rates will raise the cost of doing business, especially for small caps, and so they will dampen corporate profits.
TNA will also be bought if the Russell 2000 hits a 20-day high. The Russell closed today at 2267.59. The 20-day high of 2360.17 was set a mere 3 days ago. The extraordinary volatility was more typical of major tops than it is of a sustained rise in these stocks. The market reminds me a little of March 2000, when the Nasdaq and Russell peaked, but the S&P went onto new highs.
UPRO will be bought if the S&P 500 hits a 20-day high at 3983.87, which was hit yesterday. The close today was 3915.46.
TMF will be bought if the 30-yr T-bond yield drops below its 20-day low, which is 2.14 and rising just about every day. Today the bond closed with a yield of 2.476%. TMF will also be bought if the 3-mths/30-yr spread hits a 20-day low (2.117%). Since the 3-months yield is near 0%, the two indicators are little different, and their buy points will probably be hit the same day.
The YTD gain for the system is now 3.27%. The YTD gain for IWM is 14.88% (up 114% over 52 weeks for the R2000, which is extraordinary). However, SPY is up 4.71% YTD, and the total return for TLT is -14.90%. So a portfolio that was one-third each in TLT, SPY and IWM as of 12/31/20 would have had a return of 1.56% YTD. Onward to the fray.
Analyst's Disclosure: I am/we are long REM JNK.
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