Why Investors Should Watch Junk Bonds (JNK) This Week

junk bonds etf jnk decline lower selloff risk equities chart image

This Tuesday and Wednesday the Federal Reserve policy meeting will be held. Investors are expecting to hear a tapering announcement involving the monthly bond-buying program. 

This is the same program that has given the market its bullish gusto and is closely tied to the overall economic recovery throughout the pandemic. 

So far, long-term bonds look to make a minor adjustment with the 20+ Year Treasury Bond ETF (TLT) holding near its 50-day moving average. 

Closing -0.85% down for the day, TLT has made minor changes since its Friday close. 

On the other hand, the High Yield Bond ETF (JNK) – junk bonds – continues to sell off and is now close to breaking support at $208.06.

This could be a worrying sign for investors since we watch this junk bond ETF (JNK) as a risk on indicator when trending higher.

On the other side of the picture, the major stock market indices are currently holding near highs. 

The most impressive index was the small-cap Russell 2000 (IWM) which finally looks poised to break all-time highs at $234.53.

Mixed signals from JNK breaking lower while IWM sits near all-time highs can be tough to read as it shows that the market doesn’t completely know what to expect from the Fed policy meeting.

However, if the market is going to continue higher, watch for a recovery in JNK because if investors are not willing to buy riskier corporate bonds this could negatively affect the stock market going forward. 

Watch Mish’s latest appearance on Bloomberg!

Stock Market ETFs Trading Analysis: 

S&P 500 (SPY) is at new highs.

Russell 2000 (IWM) 234.53 is the all-time high to clear. 

Dow Jones Industrials (DIA) is at new highs. 

Nasdaq (QQQ) 382.78 is now price support. 

KRE (Regional Banks) positive if over 72.90

SMH (Semiconductors) needs to clear and hold over 277

IYT (Transportation) 267.49 is the 10-day moving average (price support).

IBB (Biotechnology) is on watch for a confirmed caution phase change with second close over 161.63 (the 200-day moving average).

XRT (Retail) is sitting in price resistance area. 

Twitter: @marketminute

The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.

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