\tHere’s the updated weekly chart…<\/p>\n
\t![\"\"](\"http:\/\/assets.jeffclarktrader.com\/ee-assets\/channels\/articles\/Screen_Shot_2017-08-16_at_11.40.26.png\")
<\/p>\n
\tHYG finished last week below the support line of its rising wedge pattern. It also closed below its 9-week exponential moving average (EMA). This action brings the 50-week moving average (MA) line into play as the next support level.<\/p>\n
\tGiven the negative divergence on the MACD<\/a> and RSI<\/a> momentum indicators, there’s a high probability that HYG is headed lower from here over the intermediate- and long-term timeframes.<\/p>\n \tRemember, though… this is a weekly chart. So it’s going to take some time to play out.<\/p>\n \tBut no matter how you look at it, this is a major warning sign for the U.S. stock market over the next several weeks.<\/p>\n \tThe action in high-yield bonds tends to lead the action in stocks. It’s the whole “risk-on, risk-off” relationship.<\/p>\n \tWhen investors are hungry for yield and willing to take a risk on junk bonds in order to capture a slightly higher yield, they’re also willing to aggressively buy stocks. When investors turn away from risk and they start selling junk bonds, they’re also quite likely to start selling their stocks.<\/p>\n \tThis is the first major breach of the high-yield market uptrend since the decline last October. Back then, HYG fell 4% in about three weeks. The S&P 500 matched the decline over the same timeframe.<\/p>\n \tIf HYG does pull back towards its 50-week MA line over the next few months, that will equal another loss of about 4%. That doesn’t sound too bad.<\/p>\n \tBut if last week’s modest 1% drop seemed stressful, think about what a 4% drop will feel like. Then, adjust (or not) your trading plan accordingly.<\/p>\n \tBest regards and good trading,<\/p>\n \tJeff Clark<\/p>\n \tP.S. <\/strong>You might have noticed a new feature added to the site this morning… an option trading glossary.<\/p>\n \tYou can access it by clicking on the top-right tab on the website homepage—or here<\/a>—and it’ll help you define the common (and some uncommon) option trading terms used in my analysis.<\/p>\n![](\"https:\/\/casey-assets.s3.amazonaws.com\/images\/misc\/jeff-clark-signature.png\")
<\/div>\n \tReader Mailbag<\/h2>\n