Looking at the below chart, it is easy to see the similarities...they basically do the same thing every day.
However, notice that in early March, the stock market was pushing new highs as JNK did not. This trend continues and I believe is a warning sign to market bulls. I fully expect these two to meet back with each other which would likely mean a market sell off.
Below is a more detailed chart showing the roll over action of JNK including Fibonacci resistance points between $39 and $40 as well as a forming head & shoulders pattern. Also notice the recent disconnect between the rising S&P500 (orange line) and the JNK index (candlesticks). This is a warning sign.
Good Luck!
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One thing I forgot to mention and why this relationship seems to matter is the bond market is significantly larger than the stock market and as a result typically bonds lead stocks. So, if Junk bonds are not showing strength and are in fact falling, I would look to them as the leaders versus the stock market and thus the stock market to soon follow.
ReplyDeleteBy April 9th this relationship came back to parity as expected. Today, the stock market is well below the bond market which suggests that stocks are now the entity that is expected to rally to close the gap. JNK has not confirmed this latest sell off in stocks.
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