Turnaround Tuesday: Junk Bonds Flash Caution

Oct 23, 2024

Since the end of 2023 and throughout most of 2024, the high-yield, high-debt bonds have been on a tear.

However, the party could be over.

Could be.

I follow the junk bonds closely, as they literally told us to exit the market and buy long bonds right before Covid hit.

Looking at today’s Daily chart of HYG , the price entered an unconfirmed warning phase today. Turnaround Tuesday: Junk Bonds Flash Caution

This is noteworthy as it is the first time the price fell below the 50-DMA since March 2024.

Nonetheless, that must confirm, plus, the slope on the 50-DMA remains up.

Furthermore, the good news is that HYG is underperforming SPY , which is risk on.

And HYG outperforms TLT the long bond, also risk on.

While this phase change could be premature, I do think it important to be prepared for different scenarios as the election gets nearer.

Real Motion shows a bearish divergence in momentum.

Moving on to the weekly chart: Turnaround Tuesday: Junk Bonds Flash Caution

HYG is back beneath the 200-week moving average.

The daily chart shows a caution phase, while the weekly chart shows a recuperation phase.

But both are negative phase changes.

As the week has just begun, we need to keep eyes on that 200-WMA.

(The real fun does not begin unless HYG breaks below the 50-WMA, which it has been above all year.)

From this viewpoint, we need to prepare for either

HYG pops back over both the 50-DMA and 200-WMA thereby flashing a lot more risk on in store-good news
HYG deteriorates from here further, hence, we see SPY wobble, and should the long bonds catch a bid, we got trouble.

The monthly chart is also interesting. Turnaround Tuesday: Junk Bonds Flash Caution

So far, this month is trading within the range of last month.

That is significant.

In September, the 80.37 high and 78.65 low is a good range to watch.

Given both the Daily and weekly charts both showing a potential inflection point in the works, the monthly chart gives us a better perspective.

Note how the price cleared the 23-month moving average aback in late 2023.

That was a clear signal to go long given the switch to risk on.

Now, as we enter the last quarter, elections, and more inflation, remember the market remains risk on-but watch for potential cracks.

Just in case.

ETF Summary

(Pivotal means short-term bullish above that level and bearish below)