One of the reasons I raised some cash and took some chips off the table Friday is that JNK bonds have very clearly disconnected from the Stock market, at least in the short term. JNK is a risk asset, similar to stocks and my first two charts on JNK and the SPX show you very clearly that both their uptrends and the timing of their 5-6 month Intermediate Cycle Lows (ICL) are almost exactly the same…. until now.
My third chart shows you that JNK has now had a Failed Trading Cycle into a lower TCL on Thursday, something we have not seen on the SPX in over a year since last years US Election. The bigger issue in play here, is that JNK is only three months since its August ICL so it should be way too early for it to be finding an ICL here. Rather, price bounced today off the 150ma likely leaving behind a TCL. But, if I am correct that this is not the ICL for JNK, price should make a lower high, forming a left shoulder topping pattern. We should have Time for at least one or perhaps two more Failed Trading Cycles for JNK, so what is this telling us about Stocks?
Perhaps I am wrong here and JNK has found an ICL at only 3 months but I don’t think so. Rather, Credit Markets are worried here and stocks have been climbing in an ever narrower “rising wedge” which is often a bearish pattern due to the narrowing price range but it can also go on for some time as we have seen (see my 4th chart from Investopedia).
One thing is clear is that the narrowing rising wedge in JNK has broken to the down side here. If JNK is leading here, will the Stock Market follow and finally give us a decent ICL? Time will Tell.
Here is a related link on JNK which is interesting but not from a Cycle timing standpoint.