So Goes Junk, So Goes Stocks? Most of the time this is true. Stocks historically want to see Junk moving higher, not diverging against them.
Below looks at SPDR Barclays (LON:BARC) High Yield Bond (NYSE:JNK) over the past few years.
JNK started heading lower back in 2014, diverging against stocks, sending a concerning message to them. JNK hit a low in February of last year and has been heading higher ever since, sending a positive message to stocks.
JNK for the past few months has chopped sideways, just below 2-year falling resistance, which looks to be the top of a narrowing pennant pattern. At the same time it was dealing with pennant pattern resistance, it looks to have formed a bullish ascending triangle (flat top and rising bottoms).
At this time JNK is working on a dual breakout of the pennant and ascending triangle at (1). Even thought Junk Bonds yields are low at this time and a concern to some, historically this type of price action is NOT a concerning message for stocks!
To send a concerning message to stocks, Junk needs to break back below dual support and diverge against stocks, which at this time, is not happening.