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Risk Tells in the Currency and Bond Markets Pointing to Further Short-Term Downside


Expect a downtrend from now until October and then a rally into the end of the year.


Emerging markets bonds are on the verge of breaking support.

Last week, I noted that the iShares Morgan Stanley US Dollar Emerging Market Debt ETF (NYSEARCA:EMB) was still holding up above its moving average support. Well, unless things change for the better this afternoon, EMB will have broken its support. That's not to say that all is lost – after all, EMB broke support back in August and it managed to rally back to new highs. However, most of the previous times EMB has breached the 14-day moving average, it has meant at least a tough short-term stretch for risk assets was occurring/coming soon.

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High-yield bonds are sending up caution flags as well.

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The SPDR Lehman Brothers High Yield (NYSEARCA:JNK) is shown above and is showing similar signs of deterioration as EMB. This time, however, it is an uptrend line that is being broken instead of a moving average line. Notice also that the RSI for JNK has broken its uptrend line. These developments do not mean new downtrends are the order of the day – just that things have moved from bullish to neutral. We'll need to see a series of lower highs and lower lows before things turn truly bearish.
No positions in stocks mentioned.

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