How junk bonds saved us from stocking up

The rally failed to lift major indices past key resistance levels.

This can be seen in the chart above of the S&P 500 (SPY), Nasdaq 100 (QQQ) and Russell 2000 (IWM).

Lines are drawn for previous support levels which, when broken, turned into important resistance points for each index to be cleared.

However, this short-term rally failed to even test those levels, showing that market weakness remains stronger than some had expected.

That said, we avoided loading on the stock due to this one symbol which did not show a buy signal.

Recently, we talked about looking at the 20+ Year Bond ETF (TLT) and the High Yield Corporate Debt ETF (JNK) for an indication of market strength or weakness.

While TLT fell on Tuesday, showing potential strength in the market, it did not continue to sell throughout the day.

However, JNK proved its worth by showing continued market weakness as investors were uninterested in buying risky corporate debt even when indices were trending higher.

junk bonds bad performance stock market bear chart

Moreover, in the chart above, we can also see that our RealMotion (RM) indicator is in the lower band and has not made any significant movement against the price.

When looking at our RM momentum indicator, it can help identify hidden momentum in relation to price.

However, the RM and the price continued to tumble, showing that buyer interest in the market was waning even after the recent surge in major indices.

That said, if the market continues to tumble, then we can monitor whether the recent lows in the index hold or break.

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Analysis and summary of ETF trading:

S&P 500 (SPY) 385 low to watch.

Russell 2000 (IWM) 168 area to watch for support.

Dow (DIA) Will likely break the 312 support area.

Nasdaq (QQQ) 285 area to hold.

KRE (Regional banks) support 58.75

SMH (Semiconductors) 215 support.

IYT (Transportation) Waiting for 223 to break.

IBB (Biotechnology) Good performance for Wednesday’s liquidation.

XRT (retail) On Wednesday, retail was the hardest hit by Mish’s modern business family.

GLD (Gold) 171.48 the 200-DMA to erase.

USO (oil) 10-DMA failed. Watch the 50-DMA next at 76.85

DBA (agriculture) Watch to fill the void at 10:19 p.m.

Twitter: @marketminute

The author may have a position in the titles mentioned at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.

Garland K. Long