High yield corporate bonds show a significant correlation with the risk-on/risk-off sentiment for the S&P 500 (SPX). As we can observe, the current market structure resembles a wedge, which can technically serve as both support and resistance.
To add complexity, we're currently at a channel resistance level, which also happens to be a historic trendline. This...
This comparison of High Yield (via $HYG) against TSY of similar maturities ($IEI). As the ratio starts to turn down, market gravitates towards risk off environment. Notice how it touches the trend line but doesn't break thru it.
in 2008, high yield b rated bonds went as high 22% in the peak of panic. This also coincided with the peak of panic for stocks. Quality high growth potential stocks sold for fantastic prices and valuations.
And it makes sense to not make sense this way.
Bonds are debt, and must get paid first as part of normal business operation.
Equity gets the excess profits...
The high-yield market (HYG)
High yield and stocks are normally highly correlated and the HYG ETF often acts as a barometer for strength in the Stock market..
As you can see things have gotten tight here in the pennant and HYG not surprisingly has chopped around just like the Spy.
Bears will see a H&S
Long only over 75 (Weekly 50sma)..
Short under 74.00...
(4/10/2023) Monday - I wanted to publish this chart so we can follow the effect the credit spread had on the S&P 500 (SPX). As you can see the inverted candles correlate well with the SPX. Note the candles are inverted and the SPX is not, just to show better correlation. At the time of publishing there has been a significant move in credit that supports underlying...
$HYG looks like it's about to fall.
There's a H&S pattern forming on the 4Hr timeframe and price just rejected the 200DMA.
Should price break support at $73.05, I think we'll see a quick move down to the $69 region, maybe even lower.
I've taken some puts just incase this plays out.
The chart is what I have felt is the most important chart to watch for sometime . We rallied and stopped right at the trend line . I have watching this as to it will become an issue for the sp 500 going forward . best of trades WAVETIMER
Flashing big warning signs. You guys need to be really carful. All the gains can get wiped out in just a few days. Covid is proof where most stocks got halted while the prices are dropping like a stone.
Orange Line = SPX
Blue Line = HYG/IEI = High Yield/U.S. Treasury Bonds
Strong Correlation between HYG/IEI and SPX.
Ascending Triangle pattern for HYG/IEI indicates more upside --> SPX to the moon.
HYG has made an inverse H-S-H pattern with an upward potential of approx. 10%, if the current break-out of its neckline is sustainably confirmed. In case this confirmation comes, we will have a valid confirmation of another bullish move of the S&P 500 towards 4400 points. Good to watch out and not to become bearish too early without enough evidence.
Bonds are giving us the signal that good times are on the horizon. This signal (bond equity divergence) has been my favorite signal this year, and I am hoping it continues to remain fruitful. I would not fade this indicator! Going long up here seems scary, but this gives me confidence that I didn't miss the final big move down :)
... for a .35/contract credit.
Comments: With the November 18th 69 converging on .10, rolling it out for a credit about equal to the monthly dividend. Total credits collected of .42 (See Post Below) plus the .35 here for .77 ($77) per contract.
