Junk bonds making a comeback

High yield bonds, as illustrated by JNK, have demonstrated a few positive developments recently. To short list the chart observations:

 

  • Broke the 2-year downtrend, broke the 50 day MA, coming into the 200 day MA –note that I do like to see that 200 day MA break to confirm the breakout.
  • Volume supports that breakout
  • Money is coming back into the sector—as illustrated by the cumulative moneyflow line (bottom pane) and the moneyflow momentum oscillator (top pane)
  • Momentum is positive, and not yet overbought.
  • Comparative relative strength (middle pane) is still trending lower vs. the S&P500—this is something to be watched.

jnk
As noted by BMO’s Jack Albin – the spread between junk bonds and treasury bond yields has grown fairly far apart — suggesting a buying opportunity. Junk yields are in the 6.5% – 7% range at this juncture.

Meanwhile, the S&P continues to worry me as to whether it can continue on its bullish rampage. It’s now toying with the vital area of technical resistance and the 200 day MA noted on last week’s blog .

I also discussed the stock markets current conditions on BNN’s MarketCall.

Remember  –  despite the recent very short termed rally, technically we are still in a bear market – or at best, a sideways consolidation phase. This must be assumed to continue being the case until BOTH the 200 day MA and the last high (May 2015, at 2135) are taken out.

Be mindful of this, enjoy the rallies, but rallies may just be that … rallies – not bullish trends, until proven otherwise.

2 Comments

  • Would you recommend taking a position in XHY? It appears to be breaking out from a downtrend. Do you think it could consolidate? Thanks.

    Reply
    • We are considering taking such a position–we would like to see the 200 day MA cracked

      Reply

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