Junk Bonds (JNK) rallied Friday, closing above the 50-week moving average. Then, today, JNK ran up to yet another new high since March. This is an excellent example of "Don't Fight the Fed!" (especially ahead of the Fed meeting). Until I see a shift in risk appetite, I cannot get negative, in spite of the headlines, economic data, rise in gold, fall in the dollar or civil unrest.
Call JNK the perfect timing mechanism, as I believe we will see the market sputter, but not until JNK stops moving up and gives us a real topping sign.
The weekly chart of JNK shows it cleared the 50-week moving average (blue). A couple of other noteworthy features of the chart:
- The high of June 5th, 105.26, was just cleared.
- The 200-WMA (green) is well above, at 107.64.
- The 23-month moving average is at 105.83.
Should JNK continue its north route and clear 105.83, I imagine the 200-WMA is next. That means the overall market will continue to run up, since risk appetite will remain high.
If JNK fails 104.91, especially with the end of the month nigh, then I would consider that a top for the overall market as well. Then we can still talk about inflation and, even more readily, add the prefix "stag" before it.
- S&P 500 (SPY): 320 held and must continue to do so
- Russell 2000 (IWM): 146 support, 150 resistance
- Dow (DIA): 270 now resistance, 262.50 support
- Nasdaq (QQQ) 262 now resistance with support at 250
- KRE (Regional Banks): Yo-yo again, unconfirmed bearish phase. 37.70 the 50-DMA
- SMH (Semiconductors): 165-168 resistance
- IYT (Transportation): 172.75 support and back into an unconfirmed accumulation phase
- IBB (Biotechnology): 142 resistance
- XRT (Retail): 46.00 support
- Volatility Index (VXX): I'd like to see a new multi-month low, then reversal
- Junk Bonds (JNK): Cleared 104.95-must hold
- LQD (iShs iBoxx High-Yield Bonds): Support at the 10-DMA 137.50
Director of Trading Research and Education