Bullish Trends Are Still Holding Up in Risk Assets for Now, but How About October?
It's time for risk assets to start building their strength into the end of the month/quarter, right? This week has been very ho-hum, but expect some better action in the next nine calendar days. After that, however, be careful!
The daily chart of the TNX still says "up, then down."
The daily chart shows how TNX has crept lower this week as stocks have come in a bit. The fulfillment of the c wave projection of the abc correction would take TNX up to the 1.955% level – and even a bit beyond that. A close above 1.978% will tell me that 2.241% (and possibly 2.473%) will be tested eventually during wave iv. Wave v, when it occurs, should mean at least a test of the July lows in yield at 1.394%. It would be hard to imagine rates falling back down to those levels while risk assets were rallying. This is why I'm of the opinion that risk assets rally a bit further, then start to correct lower (while yields rally a bit further, then move back down to the lows).
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Junk bonds have corrected a little & may drop some more – but uptrend still intact so far.
The high yield bond market has been a go-to play for many investors looking for a risk alternative other than equities. The attraction is the obvious correlation to stocks but with the added bonus of a 6% or so yield. The chart below of the SPDR Lehman High Yield Bond ETF (NYSEARCA:JNK) shows the nice run that took place from the beginning of June until just a few days ago. It also shows a matching uptrend in the RSI for JNK. It's been pretty steady upside action for both price and the RSI with just a few days at a time of corrective action. That's where we may be right now – in another JNK mini-correction. To me, as long as the uptrend line remains intact for JNK, the bull phase for risk assets should be considered intact.
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