{"id":18812,"date":"2021-08-12T07:30:06","date_gmt":"2021-08-12T11:30:06","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=18812"},"modified":"2021-08-12T07:30:06","modified_gmt":"2021-08-12T11:30:06","slug":"junk-bonds-just-fired-a-warning-shot","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/junk-bonds-just-fired-a-warning-shot\/","title":{"rendered":"Junk Bonds Just Fired a Warning Shot"},"content":{"rendered":"

Over the past month, while the S&P 500 has been steadily grinding higher and recording a string of new all-time highs, the junk bond sector has been quietly falling.<\/p>\n

This divergence is important because, as we’ve often pointed out, the action in high-yield bonds tends to lead the action in the stock market.<\/p>\n

So, if junk bonds are breaking down, then the stock market is likely to follow.<\/p>\n

And, this week, junk bonds just fired a warning shot…<\/p>\n

Take a look at this chart of the iShares iBoxx High Yield Corporate Bond ETF (HYG)…<\/p>\n

\"Chart\"<\/div>\n

On Tuesday, the right blue arrow shows how HYG closed decisively below the support<\/a> of its 50-day moving average<\/a> (MA) line. That has happened two other times this year marked by the two previous arrows.<\/p>\n

Following each of those times, HYG continued lower. And, the weak action in junk bonds spilled over into the stock market.<\/p>\n

Look at this chart of the S&P 500…<\/p>\n

\"Chart\"<\/div>\n

The blue circles mark where the S&P 500 fell 10% last September, and where it lost just over 4% during the decline in February\/March.<\/p>\n

So far, though, the stock market doesn’t seem to notice the weakness in HYG. The S&P 500 is sitting at its highest point ever, while junk bonds are starting to break down.<\/p>\n\n\n\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Something has to give here. Either the strength in the stock market is going to pull high-yield bonds back up, or the weakness in junk bonds is going to pull the stock market down.<\/p>\n

My bet is on the latter…<\/p>\n

We’re entering a seasonally weak period for the stock market. Investor sentiment (a contrary indicator) is overly bullish<\/a>. The level of speculative activity is getting out of hand.<\/p>\n

And, investors have become so well-trained to “buy the dip” that the stock market has gone more than 200 trading days without experiencing even a 5% correction – when we normally see two such corrections each year.<\/p>\n

We’re overdue for some downside action in the stock market. And, it seems to me the junk bond sector is signaling that a correction is coming soon.<\/p>\n

Best regards and good trading,<\/p>\n

\"signature\"<\/p>\n

Jeff Clark<\/p>\n

<\/p>\n

Reader Mailbag<\/h2>\n

Have you been following the action in junk bonds?<\/p>\n

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The market isn\u2019t noticing this…<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[7],"newsletter-type":[],"ticker":[],"class_list":["post-18812","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-jeff-clark"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/18812","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=18812"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/18812\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=18812"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=18812"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=18812"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=18812"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=18812"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=18812"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=18812"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}