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SPX and HYG: HYG Signals Further Intermediate Upside for Equities


SPX is pointed at my third target zone, while high-yield junk bonds suggest further intermediate upside lies beyond.

Yesterday, the S&P 500 (INDEXSP:.INX) briefly reclaimed the important psychological level of 1500, a level it hasn't seen since Bob Barker quit hosting The Price Is Right. Apparently, back in 2007, Barker quit out of moral obligation, because he knew the SPX price was wrong (insert rim-shot and favorite Happy Gilmore quotes here).

The third wave rally has now fulfilled its prediction of an upside surprise, though I'm not sure we can qualify it as a "surprise" anymore, since we were largely expecting it.

Anyway, the wave structure presently appears to support a reasonably direct trip into my third target zone of 1520-1530, and sustained trade beneath 1485 is now required to cast suspicion on that outcome.

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There is some potential of a bit more backing and filling -- it's difficult to determine if the impulse wave downward (which began around noon yesterday) represents the end of a wave or the start of one. I've noted a few keys to watch on the chart below.

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I continue to feel that the Philadelphia Bank Index (INDEXDJX:BKX) offers helpful clues here:

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Finally, a long-term chart of the iShares High-Yield Corporate Bond Fund (NYSEARCA:HYG). Junk bonds tend to be an excellent barometer for equities, and this chart suggests that there is still more upside to come for equities over the intermediate term, because it's virtually impossible to count the rally as five complete waves. Depending on what happens to prices here over the near-term, there could be signals suggesting a considerable amount of upside remaining.

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In conclusion, the market presently appears to be aimed at my third target zone. As noted, 1485 is the first key level that could begin to break the upward-facing wave. Trade safe.

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