Tuesday, December 21, 2010

JNK Watch

I've opened a position in the SPDR Barclay's Capital High Yield Bond Exchange-Traded Fund (JNK), which tracks corporate bonds with high dividends, what are often called "junk bonds".

ppspsarmacd obvh-a trend ma20ma50ma200
JNK $40.28

Every negative thing I've said about dividend trades applies to JNK. See the trash talk in my essay, "The Myth of the Income Play".

So why buy into JNK? Is an 8.3% dividend worth the risk of capital loss?

First, the etf has shown a price increase every trailing-12-month period in the past year, ranging up to 42%. That upward bias provides some confidence that a downside surprise, should it come, won't be too terrible.

Second, JNK pays dividends monthly. It is much easier to trade in and out with monthly dividends because not so much is at stake should my money be on the sidelines on an ex-dividend date. This holding will managed just as actively as I manage my earnings plays.

Third, JNK is skewed toward the higher credit ratings, with more than 80% of the holdings rated B or better. (The sector allocation, however, is 79% industrial companies, compared to 13% financial and 7% utilities -- it's unbalanced and that's not a plus.)

Fourth, the economy is at the stage of recovery where companies are very cautious -- no one is going to talk about 2011 as a thrilling go-go year in business and the markets -- and that to me suggests few corporate failures.

On the Person's chart, JNK is approaching the upper weekly pivot.

Person's Table
ppspps openupper pivotlower pivot
JNK $40.28 $40.00 dec17 $40.41 +0.3% $39.91 -0.9%

JNK since Nov. 1 has stair-stepped down with a series of swing highs, each lower than the one that came before. Today's high is the first in the series to break above the prior swing high.

Reversal Levels
  • $41.32, +2.6% (three-month high)
  • $40.35, +0.2% (prior lower high)
  • $40.28 --- You are here.
  • $40.17, -0.3% (prior lower high)
  • $39.63, -1.6% (recent swing low)

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

  • h-a trend - Heikin-Ashi trend.
  • obv - On-Balance Volume.
  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma50 - 50-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence

About the glance: The colors indicate the state of each signal.
  • Signal Section:
    • pps, psar, macd: green for bull mode, red for bear.
  • Confirmation Section:
    • obv: green for uptrending, red for downtrending.
    • h-a trend: green for uptrending, red for downtrending.
  • Environment Section:
    • ma20, ma50, ma200: green for above the average, red for below the average.

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