Market Warning Signs

As I've spoken of before, in this day and age, there are many many correlations between all the markets around the world. One of the more popular talking points in the media has been the "risk on/risk off" trades. One reason for the popularity is the extreme correlation between pretty much all assets denominated in dollars. One such extreme correlation is the S&P 500 to Junk Bond Index.

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!