So Goes Junk, So Goes Stocks? Most of the time this is true. Stocks historically want to see Junk moving higher, not diverging against them.
Below looks at Junk Bond ETF JNK over the past few years.
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JNK started heading lower back in 2014, diverging against stocks, sending a concerning message to them. JNK hit a low in February of last year and has been heading higher ever since, sending a positive message to stocks.
JNK for the past few months has chopped sideways, just below 2-year falling resistance, which looks to be the top of a narrowing pennant pattern. At the same time it was dealing with pennant pattern resistance, it looks to have formed a bullish ascending triangle (flat top and rising bottoms).
At this time JNK is working on a dual breakout of the pennant and ascending triangle at (1). Even thought Junk Bonds yields are low at this time and a concern to some, historically this type of price action is NOT a concerning message for stocks!
To send a concerning message to stocks, Junk needs to break back below dual support and diverge against stocks, which at this time, is not happening.
If you would like to stay informed of the Power of the Patterns thoughts in the Junk bond market or what our “Shoe Box” indicator is suggesting for investors to do, we would be honored if you were a Premium or Global Dashboards member. We update these members each week on the patterns of Junk bonds and the Shoe Box indicator weekly.
