jnkhygbreaking5yearsupportdec3

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Many feel investors should “listen” to the message coming from Junk Bonds, due to them sometimes being a leading indicator for the stock market.

The 2-pack above takes a look at the two largest Junk Bond ETF’s. JNK and HYG could be breaking 5-year support, as they have been a little soft of late, while the S&P 500 has hit all-time highs.

Another way to look at Junk Bonds is to look at yields versus prices. The chart below comes from Federal Reserve of St. Louis 

highyieldspreadsmovinghigherdec3

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When yields started moving higher back in 2000 & 2007 (upper left chart), junk bonds and the S&P 500 turned soft.  From 2011 to a few months ago, yields continued to fall, which is often a good message for stocks.

The lower right chart reflects that yields have recently turned higher, breaking above a falling resistance line.

Are Junk Bond ETF’s sending an early cautionary message to the stock market? I DO NOT believe that investors should adjust portfolios solely upon the action of junk bonds.

Should further weakness take place in this complex and our Shoe Box indicator and the Advance/Decline line turn down at the same time, then I would feel the message from the Junk Bond complex would be worth listening to!  

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