Mish's Market Minute

Why You Should Be Watching Junk Bonds (JNK) This Week

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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; if investors are not willing to buy riskier corporate bonds, this could negatively affect the stock market going forward.


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So far this earning season has proven to have some big winners and some big losers! On the latest edition of StockCharts TV's Mish's Market Minute, Mish takes you through those that have already reported and those who are about to report to give you the setups both long and short.


ETF Summary

  • 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.


Forrest Crist-Ruiz

MarketGauge.com

Assistant Director of Trading Research and Education

Mish Schneider
About the author: serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision. Learn More
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