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Bearish Charts in Equities About to Be Joined by Bearish Developments in Bonds and Currencies


We are just on the verge of additional breakdowns in some of the important "risk tell" charts in the bond and currency markets.



Potentially bullish status quo in Treasuries.

Treasury yields are in the middle of the trading range, but should, in theory, have some more upside. That would likely mean good times for the equity markets (while rates rise). We shall see if what appears likely in theory becomes the reality. Today, the exact opposite is occurring.

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Emerging market debt right at support.

Emerging markets bond prices (as measured by the iShares JPMorgan Emerging Market Bond ETF (NYSEARCA:EMB) continue to remain above their moving average support line. Today, however, EMB is trading down with risk assets and is actually testing the moving average line support at 122.21. A failure there would be a victory for the bears.

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High yield bonds failed to follow through on the downside. Are we allowed to call that bullish?

The SPDR Lehman High Yield Bond Fund (NYSEARCA:JNK) broke its uptrend line at the end of September. That breakdown theoretically should have been followed by more downside and a break below horizontal line support at $39.86. Instead, we saw JNK test that support on an intraday basis, stabilize, and work its way higher. That failure to break support should have been a warning for the bears that things weren't lining up the way they should for them. Now, JNK just topped out at the 138.2% Fibonacci price projection line for what appears to have been a third wave higher (and not the "c" wave of an "abc" correction higher). As long as JNK manages to hold up above $40.28, my observation that the recent peak was a third wave peak will hold water. What should follow once this higher low is made is another move to the upside – perhaps up to the September highs.

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No positions in stocks mentioned.

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