Why You Should Be Watching Junk Bonds (JNK) This Week
Written by Forrest Crist-Ruiz
This Tuesday and Wednesday the Federal Reserve policy meeting will be held.
Investors are expecting to hear a tapering announcement involving the monthly bond-buying program.
This is the same program that has given the market its bullish gusto and is closely tied to the overall economic recovery throughout the pandemic.
So far, long-term bonds look to make a minor adjustment with the 20+ Year Treasury Bond ETF (TLT) holding near its 50-Day moving average.
Closing -0.85% down for the day, TLT has made minor changes since its Friday close.
On the other hand, the High Yield Bond ETF (JNK) continues to sell off and is now close to breaking support at $208.06.
This could be a worrying sign for investors since we watch JNK as a risk on indicator when trending higher.
On the other side of the picture, the major indices are currently holding near highs.
The most impressive index was the small-cap Russell 2000 (IWM) which finally looks poised to break all-time highs at $234.53.
Mixed signals from JNK breaking lower while IWM sits near all-time highs can be tough to read as it shows that the market doesn’t completely know what to expect from the Fed policy meeting.
However, if the market is going to continue higher, watch for a recovery in JNK because if investors are not willing to buy riskier corporate bonds this could negatively affect the stock market going forward.
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S&P 500 (SPY) New highs.
Russell 2000 (IWM) 234.53 all-time high to clear.
Dow (DIA) New highs.
Nasdaq (QQQ) 382.78 now support.
KRE (Regional Banks) Like this to stay over 72.90.
SMH (Semiconductors) Needs to clear and hold over 277.
IYT (Transportation) 267.49 support the 10-DMA.
IBB (Biotechnology) Watching for a confirmed caution phase change with second close over 161.63 the 200-DMA.XRT (Retail) Sitting in resistance area.