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<\/p>\nThe stock market has farther to fall… At least, that’s what the action in junk bonds is telling us.<\/p>\n
High-yield bonds have been falling lately. And, as we’ve pointed out many times, high-yield bonds tend to lead the stock market by anywhere from two days to two weeks.<\/p>\n
So, continued weakness in junk should lead to more weakness in stocks…<\/p>\n
Take a look at this chart of the iShares iBoxx High Yield Corporate Bond ETF (HYG)…<\/p>\n
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(Click here to expand image)<\/a><\/p>\n The last time we looked at this chart was back in August<\/a>, when I pointed out that HYG had fired a “warning shot.” HYG had broken below its 50-day moving average<\/a> (MA \u2013 blue line). And, the previous two times that had happened, the stock market pulled back soon afterwards (blue arrows).<\/p>\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<\/p><\/div>\n<\/div>\n In August, however, HYG quickly recovered. It popped back above its 50-day MA. And, that action helped prevent a more significant correction in the stock market.<\/p>\n Now, junk bonds have been falling for most of the past month – and the stock market has been falling right along with them. But, unlike in August, we’re not yet seeing any signs of strength in HYG.<\/p>\n Let’s take another look…<\/p>\n (Click here to expand image)<\/a><\/p>\n The chart shows a series of lower highs and lower lows.<\/p>\n And, HYG just recently broke below its 50-day MA. This is a bearish<\/a> setup… Unless HYG can recover immediately and climb back above its 50-day MA, it looks like it’s headed for lower levels.<\/p>\n And, if junk bonds are headed lower, then the stock market is headed lower too.<\/p>\n Traders shouldn’t be too anxious to buy the dip right here. It still looks like we’ll have a better opportunity to put money to work in the weeks ahead.<\/p>\n Best regards and good trading,<\/p>\n Jeff Clark<\/p>\n P.S.<\/strong> I’m curious, have you made any significant gains following junk bonds? Will you be taking advantage of the next big dip?<\/p>\n Write in to let us know your thoughts – and any questions you may have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n\n\n![\"\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202110\/20211007-JMU-02_iwi485.jpg\")
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