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Junk Bonds Don’t Confirm Higher Highs

weekly Chart In Focus

The SP500 has rebounded from the May 17 one-day panic to push to a higher high.  But high-yield bond ETFs like HIO are not confirming that higher high, and that’s a problem.

High yield bonds typically move in sync with the stock market rather than with T-Bonds.  They are all about liquidity and default risk, much more so than inflation and other interest rates.  So when liquidity starts to dry up, that condition often shows up first in the high-yield bond market.  Eventually those liquidity... Read More

Will Labor Shortage Kill Housing Boom?

weekly Chart In Focus

We know by the message from lumber prices that the next 12 months should be a positive period for all sorts of housing related data.  New home sales, for example, tends to follow in the footsteps of lumber price movements with a lag time of about 1 year.  So because lumber prices have been trending strongly higher, that should mean higher numbers of new home sales.

This is especially true with all of the “echo-boom” generation getting into their late 20s, and starting to look at buying... Read More

China Is Pulling U.S. Bond Yields Higher

weekly Chart In Focus

It is not a surprise that U.S. Treasury yields are correlated with those of other countries.  And so it should not be too much of a surprise that when China’s 10-year sovereign bond yield is zooming upward, that the U.S. 10-year T-Note yield should follow. 

China’s 10-year yield is getting pressure from shorter maturities.  Their 5-year sovereign yield just pushed up above their 10-year yield for the first time since records began.  The moves are being credited to Beijing’s efforts to stop... Read More

High-Yield Bond A-D Line

weekly Chart In Focus

Junk bonds are the canaries in the stock market’s coal mine. 

If you want to know ahead of time that trouble is coming for the stock market, then one of the best places to look is the high-yield (or junk) bond market.  The movements of prices among these bonds correlates much more closely to the stock market than to T-Bonds.  More importantly, when liquidity gets tight, the junk bonds are the first to be sold by traders wanting to lessen their portfolio risk. 

We can see the importance of... Read More

Is Iron Ore Weighing Down Stock Market?

weekly Chart In Focus

Some U.S. stock market investors are getting worried about the price of iron ore in China.  This week’s chart helps to show why.

One analyst who noticed this relationship was Alastair Williamson of Stock Board Asset, who published this Tweet on April 18, 2017:

It is definitely an intriguing chart, and a relationship I had not explored before.  I have come across a large number of interesting intermarket relationships like this one, and it is always fun to find (or be shown) a new one. ... Read More

Gold Resolves Some Bearish Divergences

weekly Chart In Focus

A week ago, it was not looking good for the gold bulls.  The dollar price of gold had not yet made a higher high, even though the Japanese yen had already pushed to a higher high.  When divergences like that happen, it is typically bearish news for both gold and the yen.

But what looked like a bearish divergence then has now been resolved in favor of the bullish case.  The price of gold has now joined the yen in making higher highs. 

This is an important point for all chartists to... Read More