Junks Sending Mixed Signals

06/13/2013 8:00 am EST

Focus: ETFs

Understanding market correlations generally helps traders identify more profitable trades, but since the financial crisis erupted, a lot of market correlations have gone awry, and Gary Tanashian of BiiWii.com points out the latest anomaly.

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 of rising Treasury yields (declining T bonds). It seems counterintuitive 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 of 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.

chart
Click to Enlarge

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.

By Gary Tanashian of BiiWii.com

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