HYG: A Big Picture Look Since the 2009 Crash - More Trouble Ahead?

I decided it would be interesting to step back and take another look at HYG's weekly closing price chart since the 2008-9 crash by first looking at intermediate-term (1-2 year) chart patterns and then at longer-term chart patterns (5-6 year). 

The intermediate-term pattern chart follows:

click chart to enlarge

As shown, the rally off the 2009 weekly low can be characterized as a series of four rising wedges, the first three (W1, W2, W3) of which broke support and led to short-term corrections before another rally (forming another rising wedge) ensued. 

However, the fourth rising wedge (W4) has transitioned into what could be described as a falling megaphone pattern (or a falling broadening wedge) where both the resistance and support lines are falling.  

There has been one notable steep short-term rally (so far) in the falling megaphone pattern (dashed green line).  This rally is analogous to the steep short-term corrections in the rising wedges (as they are both counter-trend moves).

Also note that the slope of the resistance lines for the wedges and megaphone show a "rolling over" effect in terms of price trend.

The transition from rising wedge to falling megaphone seems to clearly mark a change in investor sentiment towards corporate high yield bonds that is apparently still developing.  
If this megaphone pattern is correct and HYG's price continues to decline, it could fall below $80/share based on where megaphone support is located (and support on the long-term pattern chart discussed below). However, this is just a possibility and not a prediction.


Next the longer-term pattern chart:

click chart to enlarge

This chart shows the apparent megaphone pattern (blue) for reference and five long-term support lines (green), the first three of which have already been broken (dashed green) and form rising wedges or a channel with the overlying resistance line (red).  

The last two remaining support lines (solid green) form a broadening pattern with the resistance line and come into play in the $84-85 range and $79-80 range (if the share price would drop precipitously from here).

Needless to say, based on this analysis, I am very content to be sitting on the sidelines watching these chart patterns develop.  At some point there will be an opportunity to invest in high yield bond funds again - probably at a lower price with higher dividends.  Now appears to be the time to practice patience.

Update (8/14/2015): Chart below shows that HYG has continued to descend toward line #4 shown in the chart above.

click chart to enlarge

Again, this is not investment advice.  This is just an example of how I use technical analysis to help me understand market conditions, investor sentiment, and make investment decisions.  You and you alone are responsible for your investment decisions.

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 junkbondrecycling.com 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 StockCharts.com.  Analysis and Annotation by JunkBond Recycling.com (all rights reserved)