Tag Archives: junk bonds

Junk Bonds on the Verge of a Signal

Junk bonds (HYG fund shown below) have been hugely popular as casino patrons rushed for yield at the behest of the Fed, which took away yield elsewhere.  Well, now they may be getting it in the form rising Treasury yields (declining T bonds).  It seems counter intuitive that junk would show risk coming OFF, yet T bonds are not benefiting.

That is the screwed up market we have here, with normal signals all put in blender.  But it is safe to say that junk bonds remain an indicator to the will to speculate.

HYG declined to the first notable support at the weekly EMA 30 and is in danger of losing that average.  Next stop would probably be the EMA 100, which supported the Flash Crash hysterics in 2010 and the Euro hysterics last year in 2011.

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HYG weekly chart from NFTRH 241

Volume trends have indicated a rush into junk bonds created by the post-2008 environment that has seen policy makers compel people into risk.  But there has been some huge negative volume the last couple weeks and as we noted in NFTRH, this volume looks more like a kickoff to something than a final capitulation of something because there has been no downtrend from which to capitulate from.

Pierced Bubbles

Here are two of them; Japan and Junk.

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DXJ & HYG daily

And I distinctly remember using emerging market bonds as an indicator to bullish things a year ago.  Now?  Not so much.  This market continues to look very opposite to a year ago.

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TEI daily

Junk Bonds Break the 50 Day Averages

The HYG junk bond fund has done something it has not done since the November market correction in breaking below the 50 day averages.  Before that?  Why the correction before that was 1 year ago and it launched this entire disgusting greed fest.  Of course, it wasn’t disgusting back then.  It was a bullish response to way over bearish sentiment.  Wash, rinse…

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HYG daily

If just by an odd chance this holds up and ends up being a good bear signal, take time to remember all the bull wise guys that jumped on the trend and have looked like geniuses right up through yesterday.  That’s how trend followers roll… until things turn and they go quiet while waiting for the next mature trend.

It’s the Mixed Signals Market

I have made no bones about the fact that some of the tools I have depended on have stopped working, at least temporarily.  For example, the gold-silver ratio would normally have croaked junk bonds and the stock market by now.  For another, the 30yr-2yr yield spread would have pulled gold up as opposed to its current bear market state.  There have been other indicators that have just stopped working and the temptation is to rave “Bernanke this!” and “Bernanke that!”

But that does no good.  Bernanke is winning (duh) and he is the man on the cover of the Atlantic, smugly grinning out from behind the bold headline The Hero.  I on the other hand am just a schmo with some broken tools.  But I also have nominal technical charts that have helped avoid the hazards that we might believe active policy making have wired in to the markets.

By the way, speaking of indicators that don’t seem to make sense, why on earth are T bonds (which do not like inflation) and commodities (which do) both getting hammered today?

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TLT & DBC hourly

The hit to commodities of course has something to do with the strength in the USD* (which we have noted over the last several weeks is on a bullish – not bearish – signal by weekly chart), but what on earth is up with T bonds if inflation is not an issue?  Could it be that somewhere in the T bond market lies the future undoing of the Hero’s myth?

I am going nowhere with this post other than it is an over-stimulated market with policy makers front, center and every which way screwing with normal market management.  Within that context, survival in the short term in service to proper positioning in real value over the long term is vital.

Gold bugs may be right with the hysteria (like that showing up in my inbox) about Cypress being the first leg kicked out from under the neatly set table, and oncoming confiscatory policies.  But those that went all in with ideology are paying the dearest price in the interim.  This is speaking of the paper markets, anyway.  Gold is gold (value) in the monetary realm and ain’t nothing gonna change that.

The play remains to be intact first and ready to capitalize second.  That is because the other way around, trying to capitalize (on ideology) first and be intact second is not working and has not worked for over a half a year, and has not worked well for 2 years.

* Here is the weekly USD chart from NFTRH 230, created 7 weeks ago noting a bullish moving average cross.

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US dollar, weekly

Bear Case Needs Junk Breakdown

I look forward to trading the precious metals long and potentially short over the next several days.  Key word, trading.  But let’s not forget about the big market.  The bears really need the junk bonds (and the implied confidence they hold for policy makers), among other things to break down to indicate a real bear phase in the broad US market.

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HYG, 60 min.

Is Junk Finally Cracking?

After watching the ongoing display of greed and momentum over the last few weeks, all at the behest of a money printing, debt manipulating inflator, I would just love to see greed get punished.  None (IMO) are so greedy as those chasing junk bonds higher day after day.

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HYG daily, click for full size view

Junk bonds are a leading indicator to speculation and the general casino atmosphere that has been promoted.

By the way, that hammer candle means squat because it appears right at the initial break.  A hammer at the end of a downtrend can signal reversal.  This one is a candle that will hopefully kick off a phase where greed gets punished.

Okay, so there you see my bias bleeding through in a post.  I am moderately short this mess, but still hold what I consider to be quality stocks against those shorts.  But I would really like to see the come-lately bulls get punished because it just should not be as easy as listening to Bernanke whisper sweet nothings, chase momentum and make big bucks without doing any work.

So, the last two posts in the books, watch the market ram to new highs tomorrow.