Let’s be clear up front… At current prices, I do NOT like high-yield bonds.
Investors aren’t getting paid enough yield to justify the risk. Ultimately, it will be collapse of the high-yield bond market that causes the next great financial crisis.
That said… high-yield bonds just did something that looks quite bullish. Just look at this chart of the iShares iBoxx High Yield Corporate Bond Fund (HYG)…
After trending lower for a couple of months, HYG has turned higher. Yesterday, the fund closed above its 50-day moving average (the blue line). And the 9-day exponential moving average (the red line) is on the verge of crossing back above the 50-day moving average. This sort of “bullish cross” often indicates the start of a new, intermediate-term uptrend.
So, high-yield bonds look like they’ll move higher over the next several weeks. And that’s bullish for the stock market.
You see, the action in HYG tends to lead the action in the broad stock market by anywhere from two days to a couple of weeks. If high-yield bonds are rallying, investors are willing to take on risk. That means stocks tend to rally, too.
And vice versa. Just look at the action in HYG in January. HYG peaked early in the month – about two weeks before the peak in the broad stock market. While the S&P 500 kept making higher highs, HYG was making a lower high. That was a good warning sign that stocks were in for a tough period.
Now, HYG has crossed back above its 50-day MA and appears to have started a new uptrend. Meanwhile, the S&P 500 closed yesterday about 60 points below its 50-day MA.
It looks to me like HYG is sending a bullish signal to stock traders.
Best regards and good trading,
P.S. With this bullish signal from the high-yield bond market… and earnings season picking up steam… stock traders should do well in the coming weeks. But my Delta Report subscribers will do even better.
It’s all thanks to a unique market anomaly I use to find precise entry and exit points for my readers. To learn more about my system, and how you can use it to book a month’s worth of returns in a single day, click here.
Today, a response to yesterday’s Minute, “This Is Where the Bulls Need to Step Up”…
Jeff, Monday’s Market Minute is a great example of why your services are better than those of most technical analysts, and is something that your critics in the mailbag should take note of.
Most technical analysts just pop up with a “Hey, I’ve found a great setup for you!” Their patterns and reasoning have an ad hoc feel. With you, you walk us through potential patterns you see forming. If they come through, you make a recommendation; if they don’t, you pass and keep looking as the next possible setups form.
I think most of your readership appreciates this kind of deliberation, and makes them more comfortable putting their hard-earned money in well thought out trades. As for the critics who want more trades, I don’t think your service comes with a lock on their brokerage accounts. They’re still free to shoot at whatever they think they see moving, and I wish them good luck with that.
A few kind words from Delta Report subscribers…
I started subscribing at the beginning of this year and the results have been amazing.
I was a financial advisor for 20 years and just retired at the end of March. I am amazed at the people that write in and complain about your performance. Part of the reason I left the industry was clients have completely unrealistic expectations and apparently it is no different with your subscription. You have provided returns that most of my clients would be happy with over a year or two in less than two weeks for most trades. Keep up the good work and ignore negativity – you can’t please everyone.
On a different note, FNV looks like it has good positive divergence on the daily chart. Would options work for this one? Keep up the great work!
Jeff, Thanks for your great work this year. You help me stay sane and keep from selling through these recent months of market turbulence. Thanks for your spot-on real-time analysis – absolutely excellent!
And finally, some macro points of analysis…
Jeff, I’ve been reading your words since 2005, only recently trading with you. So into my brain pops this thought, why is it you seem unworried about all the craziness going on throughout the world?
There are problems all over the world, we have new leadership who seem to like to whack the beehive quite frequently, and we have talking heads (the media) who would rather the market crash than lend credibility to the good things going on in our country. So, despite there being large and not-so-large risks worldwide, you continue to study and correctly define how far the U.S. market will stretch, and then snap back again. Even you must know that we (your readers) find your calls uncanny.
In some ways I almost get the feeling that you don’t give much value to politics and the media. Went back recently and read some older issues, and you never bring up what I would call the “Macro” of what is going on in the world, but rather you stick to what you have learned about the behavior of the markets, when and what the best setups are, and then calculate the best risk/reward recommendations. Your thoughts might help me become both a better trader and investor.
Hi Jeff. My current view is that all technical analysis is absolutely useless until they delete Trump’s Twitter account. You do a good job that would work very well under normal market conditions, but as long as that nutjob is in the White House I’d rather watch from the sidelines and enjoy the show.
Thank you, as always, for your thoughtful letters and insights. Keep them coming right here.