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Calamos Convertible And High Income A Good Buy?

12/08/11 01:20:01 PM
by Koos van der Merwe

Calamos Convertible and High Income has an 8.7% annual distribution rate at present prices. Is it worth our attention?

Security:   CHY
Position:   Accumulate

There is a great deal of uncertainty in the market. If it is not Europe causing that uncertainty, then it is the oil price, ahead of next week's OPEC meeting. If not oil, then gold, and if not gold, then Congressman John Boehner, pushing the Republican agenda ahead of President Barack Obama's economic recovery plan. Uncertainty is everywhere.

So where do investors put their money? They look for some type of investment that offers them a yield. Daily volume in the market, with its high-volatility swings, is below average -- extremely low. Banks are offering interest on monies deposited at an extremely low rate. Mattresses are stuffed with cash and becoming uncomfortable, causing many sleepless nights. So go for yield.

Graphic provided by: AdvancedGET.
Figure 1 is a daily chart of Calamos Convertible and High Income Fund (CHY) and shows the formation of an inverted head & shoulders with a neckline at $12.11. An inverted or reverse head & shoulders pattern usually occurs towards the end of a downtrend. Should the price break above the neckline, then a buy signal will be triggered with a target of $13.90 (12.11 - 10.32 = 1.79 + 12.11 = 13.90). The relative strength index (RSI) signal is showing higher bottoms as the share price traces the formation. Note as well that a buy signal has been given on the JM internal band indicator.

We could buy the share on the JM internal band buy signal, or we could wait for the neckline to be penetrated at $12.11. With the yield at the present price of $11.69, at 8.3%, CHY looks like a good buy.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
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