{"id":21094,"date":"2023-08-02T07:30:48","date_gmt":"2023-08-02T11:30:48","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=21094"},"modified":"2023-08-02T07:30:48","modified_gmt":"2023-08-02T11:30:48","slug":"why-you-should-pay-attention-to-junk-bonds-right-now","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/why-you-should-pay-attention-to-junk-bonds-right-now\/","title":{"rendered":"Why You Should Pay Attention to Junk Bonds Right Now"},"content":{"rendered":"

High-yield bonds (a.k.a. junk bonds) are a great gauge for investors’ willingness to take on risk<\/a>.<\/p>\n

That’s why Jeff Clark says that a move in junk bonds is often a leading indicator for the stock market.<\/p>\n

If stocks are set to move higher, junk bonds will usually rally first. The same thing happens the other way around. A fall in junk bonds often precedes a sell-off in stocks.<\/p>\n

That’s why what’s happening in the junk bond market right now is so fascinating…<\/p>\n

Junk bonds, as measured by the iShares iBoxx High Yield Corporate Bond Fund (HYG), have been chopping sideways for over a year.<\/p>\n

The range in HYG has been quite narrow as well, with prices unable to break beyond a 10% move either up or down since late 2022.<\/p>\n

This kind of trading pattern is just like water heating inside of a kettle. Eventually, the water’s going to boil, and all that steam will have to escape.<\/p>\n

After a period of long consolidation, the market will eventually have to break out in one direction or the other. The longer the consolidation, the fiercer the breakout.<\/p>\n

This sideways pattern in HYG is in sharp contrast to what we’ve seen in the stock market. The Nasdaq 100 index is up around 45% year-to-date, while HYG is only up 2.10% year-to-date.<\/p>\n

This is an unusual divergence between two markets that are typically closely correlated.<\/p>\n

Something will have to give sooner or later. Either junk bonds will have to catch up to stocks… or the stock market rally is going to fall apart.<\/p>\n

Let’s look at a price chart of HYG to see if it offers any clues as to which way the markets will break…<\/p>\n

<\/p>\n

\"Image\"<\/p>\n

HYG has been trading in a sideways triangle pattern since June 2022 (blue lines). Triangles are almost always trend continuation patterns.<\/p>\n

They consist of two trendlines that funnel price action into a point called the apex. The apex of a triangle is where a breakout is most likely to occur.<\/p>\n

<\/p>\n

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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

<\/p>\n

As you can see, HYG is trading quite closely to that apex right now. Prior to trading within this triangle pattern, HYG was in a significant downtrend that started in September 2021.<\/p>\n

This means it’s likely once the triangle pattern breaks out, it will lead HYG to lower prices. The key level keeping the triangle pattern together is the February 2 high of $77.20.<\/p>\n

If HYG breaks above this level, then it would invalidate the entire pattern, and would mean having to go back to the drawing board.<\/p>\n

On the other hand, breaking below the supporting trendline of the pattern would be great initial evidence that the triangle has completed and HYG is ready to start selling off.<\/p>\n

Happy trading,<\/p>\n

Imre Gams<\/p>\n

<\/p>\n

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READER MAILBAG<\/h2>\n<\/div>\n

Have you been following along with the bond market?<\/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":"

High-yield bonds (a.k.a. junk bonds) are a great gauge for investors\u2019 willingness to take on risk. <\/p>\n","protected":false},"author":55,"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-21094","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\/21094","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\/55"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=21094"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/21094\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=21094"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=21094"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=21094"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=21094"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=21094"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=21094"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=21094"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}