{"id":20414,"date":"2022-12-08T07:30:02","date_gmt":"2022-12-08T12:30:02","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=20414"},"modified":"2022-12-08T07:30:02","modified_gmt":"2022-12-08T12:30:02","slug":"this-flag-is-a-ticking-time-bomb-for-market-breakdown","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/this-flag-is-a-ticking-time-bomb-for-market-breakdown\/","title":{"rendered":"This \u201cFlag\u201d Is a Ticking Time Bomb for Market Breakdown"},"content":{"rendered":"

I know a lot of folks are hoping for a Santa Claus rally to close out 2022…<\/p>\n

Unfortunately, hope isn’t a great strategy when it comes to investing.<\/p>\n

Although we’ve seen some rallying in the markets lately, we should keep a close eye on what the charts are telling us.<\/p>\n

Take for example, the recent bullish action in high-yield bonds, which have enjoyed a sizeable rally.<\/p>\n

The iShares High Yield Corporate Bond ETF (HYG)<\/strong> has gone up almost 7.5% since October 13.<\/p>\n

This move in HYG has coincided with the rally in the broader stock market as well… the S&P 500 was up as much as 17.44% over the same period.<\/p>\n

But now, it looks as though HYG is running into some technical resistance.<\/p>\n

If HYG reverses course, then it’s likely stocks will fall as well.<\/p>\n

Before I show you a price chart of HYG, I want to stress that the bearish pattern I’ve spotted isn’t complete yet.<\/p>\n

But I wanted to get this price chart on your radar now, so you’ll know what to look out for if HYG starts breaking down hard.<\/p>\n

It’s good to be aware of the worst-case scenarios – even if they don’t come to pass.<\/p>\n

Now, let’s look at the HYG price chart below…<\/p>\n

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

There are two important things going on with this chart…<\/p>\n

    \n
  1. \n

    The blue lines highlight a chart pattern known as a “bearish flag<\/strong>.”<\/p>\n

    Bear flags are trend-continuation patterns. Once the pattern completes, it should draw the market to fresh lows.<\/p>\n

    For HYG, that would mean breaking below the October lows of $70.<\/p>\n

    A highly reliable signal that the pattern is complete would be a break below the lower boundary line of the flag.<\/p>\n

    Notice how prices have currently stalled along the upper boundary line of the pattern.<\/p>\n

    If HYG can’t break out above that upper boundary line by the end of the week, then it increases the odds the market will start trading lower.<\/p>\n<\/li>\n

  2. \n

    A bearish divergence<\/strong> (orange line) is forming in the Relative Strength Index (RSI) momentum indicator.<\/p>\n

    For HYG, bullish momentum peaked in late October when HYG topped out at $74.69.<\/p>\n

    Since then, HYG has kept pushing to new highs, but the RSI has started to trend downward.<\/p>\n

    This phenomenon is known as divergence. It occurs when the actual price of a market and the RSI are moving in opposite directions.<\/p>\n

    Bearish divergence is a strong, advanced warning of market weakness.<\/p>\n<\/li>\n<\/ol>\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

    The technical evidence in HYG tells me we should expect a bearish turn in the markets.<\/p>\n

    You see, the last time HYG broke down was from September 12 to October 13, falling over 7% in the process.<\/p>\n

    During that same period, the S&P 500 fell over 16%.<\/p>\n

    This correlation between the broader stock market and HYG is historically quite strong.<\/p>\n

    So, if HYG starts to break down again, it’s likely the stock market will follow.<\/p>\n

    That’s why it’s important to keep a close eye on this bear flag…<\/p>\n

    If HYG breaks below that lower boundary line, it’ll greatly dimmish the odds of an end-of-year rally in the markets… regardless of what everyone is hoping for.<\/p>\n

    Happy trading,<\/p>\n

    Imre Gams
    Analyst, Market Minute<\/em><\/p>\n

    <\/p>\n

    Reader Mailbag<\/strong><\/h2>\n

    In today’s mailbag, a Jeff Clark Trader<\/a><\/em> member thanks Jeff Clark for his educational resources…<\/p>\n

    \n

    Hey Mr. Clark, thank you very much for your exclusive, Guide to Options Trading<\/em> report!<\/p>\n

    – Martine H.<\/strong><\/p>\n<\/blockquote>\n

    Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at feedback@jeffclarktrader.com<\/a>.<\/p>\n

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

    It\u2019s good to be aware of the worst-case scenarios\u2026 even if they don\u2019t come to pass…<\/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":[76],"newsletter-type":[],"ticker":[],"class_list":["post-20414","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-imre-gams"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/20414","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=20414"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/20414\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=20414"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=20414"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=20414"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=20414"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=20414"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=20414"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=20414"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}