Junk bonds are typically just that - junk. But, the iShares High Yield Corporate has been one of those crowded trades that just do not die.
After witnessing the immaculate short squeeze from 1,864, the SPX staged an impressive rebound. But as I mentioned earlier today (on my InvestFeed - link below), the SPY is looking weak, and the ADX, which measures trend strength, is beginning to fall.
This is interesting because HYG tends to flow with the SPX (and SPY). As equities had a sharp correction so does high-yield The opposite is also true, and junk bonds rallied along side equities. SPY also acts more "violently" when prices diverge greatly.
According to ETF Daily News, roughly $10.7 billion was injected into U.S. equity ETFs last month, while $8.3 billion of inflows were seen in U.S. corporate bond ETFs - the largest monthly inflow recorded. HYG took in just over $5.5 billion.
This is important because today's trader shows the epitome of herd behavior: all cramming into a few trade ideas. So, when that idea doesn't material, traders flee and the response is not exactly orderly.
Price action is on a few minor support levels, but there is bearish EMA, RSI and DMI momentum. ADX looks to be moving upwards supporting negative price action.
If the SPY breaks down lower (I'm expecting mid-160k NFP tomorrow), this could spell trouble for HYG.