Junk Bonds: Watch For Bearish Reversal Pattern
Chris Kimble | Oct 31, 2016 11:32AM ET
Junk bonds are said to have an influence on stock prices as a leading indicator.
If that's true, it may be worth paying attention to what Junk does this month.
Junk Bond ETF JNK has been pushing higher since earlier this year. The rally now finds it facing falling resistance as well as its 50% retracement level of the decline suffered from 2014 until it created back-to-back monthly reversal patterns (bullish wicks) in January and February at (1). The monthly bullish wicks at (1) were followed by a rally in junk and the broad markets, too.
One month's pattern at (2) DOES NOT prove anything for bulls or bears.
The risk-on trade may want to keep a close eye on junk going forward, due to the shape of the pattern this month and where it is taking place. Junk could, this month, end up sending an important message for the future.
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