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Friday, September 25, 2020

A Warning from junks?

The market is experiencing a schizo moment now, sharply high one day, followed by sharply low the next day......The extremely volatile market reflects the uncertainty for the time being and is one way the market God is punishing those FOMOs in chasing highs during its euphoric moves in the recent past. After declining 10% for S&P to officially enter the correction territory, it has been also quite oversold for the time being and is due for a rebound. However, don't be complacent even if the current rally seems strong as it is likely a dead cat bounce! One leading indicator is indeed flashing a warning sign again.

The action in junk bonds tends to lead the action in stocks. So, it's worthwhile to note that the chart of the High Yield Corporate Bond ETF (HYG) is looking vulnerable.   HYG closed below its 50-day moving average (MA – the blue line) on Monday and is continuing the downward trend. It has also broken down from its multi-month trendline. Yes, It's not a dramatic decline …yet and will likely hold at its 200 DMA support. The million dollar question is for how long it can hold up. See what it did back in Mar. After touching its 200 DMA, it bounced back and made a suicide kiss (still remember this sweet jargon?😎) to its 50 DMA! What happened next was an epic historical record, a straight line crash by 20% within 2 weeks!

Will the history repeat itself? No one knows for sure at the moment but the risk is clearly out there. Don't just ignore it but pay close attention to its next moves in the weeks ahead!! If it breaks down from its 200 DMA, watch your rug underneath as it may be pulled out suddenly!!🤕



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