HYG Breaking DOWNImportant to note the High Yield Bonds broke the closing low from the Feb lows. This is very bad. Market down side continuation is almost assured. Considerable down side risk in these bonds.
HYG trade ideas
HYG/TLT : SPYAt a major inflection point historically speaking, but the ratio is also very low historically speaking.
HYG - bye, bye, byeArc Pattern still playing out within the triangls. We need a breakout soon. Any more uncertainty and its down, down, down.
Short high yield debtForming a topping pattern with a recent right shoulder in the process.
Potential early entry now, through a spike higher is a possibility. Else wait for pattern completion.
I view the H&S target as a minimum ... it could drop far further
Credit Spreads Narrowing = Good for EquitiesThe Junk / 20 Year Bond Ratio is showing early signals of continued if not increased appetite for stocks as an asset class. For anyone not familiar with this ratio, we're looking at HYG/TLT (or HYG/IEF which is also showing the same signs). In short here's what it means for you and me:
Falling Ratio = Credit Spreads Rising (bad for stocks)
Rising Ratio = Credit Spreads Narrowing (good for stocks)
Go back through any bear market or even just prolonged periods of consolidation and you will see this ratio hold true. When Stocks are showing risk appetite, we want Bonds (specifically credit spreads) to confirm. A rising spread between Junk and Government bonds helps confirm risk appetite for Stocks, and we are even seeing signs here that the ratio is breaking out of a nice base.
If the ratio falls back below the .69 area, that negates this thesis and we will re-evaluate as it could have broader, negative implications for the market.
For now, we have 2 initial upside targets at .82, then .92. As these targets are hit, we can expect stocks as an asset class (especially reflected in the indexes like the S&P 500) to consolidate or selloff a bit.
This also means the bout of selling we saw last week and potentially more in the coming weeks is a nice buying opportunity for long term holdings, but also for setups in short term trades and options plays. The selloff in bonds, at least for now, is not a worrying sign from a structural market perspective.
Stay patient, dedicated, and focused out there.
Bearish High Yield - It just feels so rightThis curve is what seemed natural when I viewed this chart. As rates rise, I think HYG will lose this fight with the crowded area that it is currently trading in and complete this pattern.
Rolling OverHi guys. It appears that HYG has lost its positive momentum and we're observing a possible roll over on the weekly chart. I'm not an expert and just want to share some observations. It's my understanding that HYG is almost like an index. I wish everyone good trading.
Credit - HYG & BIZD- BIZD looks like a descending triangle and HYG is in down channel
- a bounce is possible but the long term pattern is not bullish
A Breakout From Historically Narrow Range Idea: Junk #Bonds$JNK & $HYG trading in tight range. #Options play? Custom scripts on chart. $STUDY Prices are removed for ease of visualization.
HYG BIZD bearish trend - BIZD leads HYG and divergence gives confirmation of pattern
- BIZD currently in down channel
- Longer time frame, H&S pattern in formation
- bigger move if H&S pattern play out and take times for the formation
HYG correlation with SPY/QQQ/IWM-30D correlation turns -ve for SPY/QQQ/IWM
- since 2009 only 4 cases
- the first sample occurred at low and market turn higher later
- other 3 cases show bumpy road ahead. Pullback when HYG hit lower
hi yield may yield even moreThis chart speaks for itself. Targets below. When it falls it plummets quickly.
$HYG - smells like trouble? We have a possible Heikin-Ashi sell signal developing at key supp/res level.
Pls see indications marked with ellipses.
HYG bearish breakdown ?HYG has closed below the trend line ....WITH volume.
targets are listed. Last time it broke it moved fast. This almost looks like a larger term retesting of neckline of the previous leaning topping pattern from 2013-15 Enjoy if this triggers it will be fun
Next TradeI don't think it's bad timing to enter today. But given the low volatility and my holding period, I would like to take the risk and wait for a little longer.
Divergence Between HYG and DOW Presents A DOW Short OpportunityThe breakdown in HYG even as the DOW is making new highs suggests a divergence that can only be reconciled with a correction in the DOW. Note the extremely high volume in the down days for HYG, which serves as a confirmation on the downside. If the FED really does raise the Fed Funds Rate in December (which I think to be unlikely), we will see another steep decline in the DOW ala Jan 2016. In the past week, the emerging markets (use of SCHE as a proxy in orange) are showing signs of distress with the threat of a FED hike looming and a stronger USD. If this continues, the DOW will not be able to escape the pull of gravity.
Is $HYG leading $SPY Lower? Pt.2There is no question that credit markets have been distorted for a long-term, but, fortunately, if you are in tune with what is going on it help get you out of the way of a steam roller.
High-yielding junk debt has been a huge trade this year as investors continued to seek yield despite valuations and a clear crowed trade. The chase for performance also led investors to pile into corporate debt as the "safer" alternative to junk and grossly negative European debt. Unfortunately, the tide has been turning and investors are beginning to pay for it.
Junk debt has seen six consecutive days of declines as flows continue to come out of these exchange-traded funds like HYG, seeing a single-day record outflow of nearly $1B, and JNK. There also has been little coverage on the corporate side, but capital is also bleeding.
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And we are witnessing some troubling signs that could cause spreading implications to broader markets. Nearly a year ago, 361 days to be exact, my " Is HYG leading SPY Lower " pointed out a pivotal point for markets. In less two months later we saw junk yield spreads absolutely blow out to over 1,000 bps and stocks saw the worst start to the year ever.
With a combination of a highly anticipated Federal Reserve rate next month hike and slowing growth (sound familiar?) volatility has been insidious.
Technically, the price action near-term is oversold but over the course of the next couple months that will likely not matter, we could see a January 2016-like selling spree as uncertainty creeps up.
On a longer-term perspective,, HYG has been trading within a HUGE triangle, and lower support will be tested!
The near-term trend broke, and today's price action is seeing some support on the 200-day EMA. The momentum is gaining quickly with the ADX-indicator popping from 10 to 15, while topping 20 will indicate a substantial price trend. From my previous note last November, we saw momentum gain from 17 to top at 48.
Even if Janet Yellen backs away from hiking rates (which will cause a mutiny on her hands), the strength of the DXY on the back drop of slow, grinding-lower growth will put continued pressure on junk bonds.
Furthermore, as with last November, we see lower crude oil from here; and this will undoubtedly cause concern for high-risk shale producers.
Trend cautiously. HYG at $70 is our 6-month target.
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Short book: HYG - Topping patternToday we added a couple shorts, I'm posting the trades we currently have open but not providing entry/stop suggestions. Only trade them if you have a trading strategy, or, ask me if you're interested in learning more about the one we use (Tim West's 'Key Hidden Levels' and 'Time at mode').
We have some worrying bearish signals, so it's a good idea to have a market neutral position, picking stocks to short, while still looking for longs in undervalued companies.
See related ideas for the rest of the trades we took. You may still be able to join them or wait for a secondary entry when/if we decide to add to them.
Good luck,
Ivan Labrie.
HYG/TLT: Short the ratioWe have an interesting pair trade here, you can take a short position in HYG, paired against a long in TLT to capture the profit from the spread closing. Right now, HYG moved too much, relative to TLT, so it's bound to correct back down, giving us a low risk trading opportunity. Position size should be enough to theoretically risk 0.5-1% of the account if price moves 3 times the daily ATR against you on each side (individually). You might have to hold a trade while it's in loss, but the combined profit/loss of the pair will result in a profit if the analysis is correct and this ratio starts to decline sharply.
We pointed this trade out at the Key Hidden Levels chatroom today. For more information contact Tim West, or me.
Cheers,
Ivan Labrie.
