JNK Watch

High-yield corporate debt (JNK) are showing a bull signal on the parabolic sar. The exchange-traded fund, which tracks junk bonds, had been trading sideways for nearly three months before a May 4 break sent the price downward by 8.3% in less than a week.

	trend	adx	psar	pps	macd	macd trend	sto	sto trend
JNK $38.96

JNK was pushed even lower by the mini-panic of May 6. I'm ignoring that low in my analysis, for reasons set forth in the two Skynet Panic essays listed at the end of this analysis.

JNK is mainly a dividend play. It pays monthly with a current yield of about 9.7%. The next ex-dividend date is June 3.

So the question with JNK isn't so much how to manage capital gains, but rather when to enter so as to provide the best chance of preserving capital.

The present low price -- 3.2% below the swing high of May 4 -- when combined with a bull signal provides an opportunity for parking cash that I find attractive.

However, a caution: Just because its bonds doesn't mean it can't be volatile. On Oct. 10, 2008, as capitalist finance collapsed around our ears, JNK swung 24% high to low in a one-day net downward move.

I took that particular ride, and didn't enjoy it one bit. Since then my rule on dividend plays is to treat them no different that stocks I trade for quick capital gains: I follow the technical signals, and trade out when they move against me.

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The Investor's Guide to Active Asset Allocation: Using Technical Analysis and ETFs to Trade the Markets

Martin Pring's detailed deconstruction of the economic cycle: What sorts stocks to look for at each stage of the recovery. A masterful analysis.

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Skynet Panic of May 6
Panic Looks Like This
Skynet Panic Poisons Technical Tools

Abbreviations:
psar - Parabolic Stop and Reverse
adx - Average Directional Index
pps - Person's Proprietary Signal
ma20 - 20-day moving average
macd - Moving Average Convergence-Divergence
mfi - Money Flow Index
sto - Fast Stochastic

About the glance: The colors indicate the state of each signal.

• trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
• adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
• psar, pps, macd: green for bull mode, red for bear
• sto: green for overbought, red for oversold, yellow for the neutral zone.

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