Dumping the Junk?

Focus: INCOME

Pundits have been predicting the demise of the 30-year bull market in bonds for the past few years, and MoneyShow’s Tom Aspray examines the charts for signs whether it is now imminent or not.

Stocks moved lower Wednesday as while some were disappointed by the weak GDP it was the FOMC announcement that triggered more profit taking. It was not a surprise that the Fed announced that that they were going to stick with their bond buying program and blamed slowing in the economy on the weather.

Nevertheless the losses were minor as the Spyder Trust (SPY) held above Tuesday’s low at $149.67 and closed barely above $150. There are some signs of deterioration in the short-term A/D indicators but no signs of a meaningful top. Typically, before a top is formed, we would expect to see a sharper pullback like a close below the prior three-four day lows. This should be followed by another rally that could move the SPY to new rally highs.

There were some interesting developments in other markets as two of the biggest junk bond ETFs were down significantly on quite heavy volume. I had cautioned income investors not to buy the junk about two weeks ago as the risk was not worth the yield.

Overall, rates have been moving higher as the yield on the 10 Year T-Note moved above 2% on Wednesday.