The S&P 500 was heavily oversold last week according to weekly analysis Our Big View. Consequently, the market rebounded and erased the 50-day moving average of all indices.
The macroeconomic context of the financial system remains the same. However, with all the headwinds, can this rebound last?
First and foremost, nothing has changed in the underlying fundamentals of the market.
According to the latest Refinitiv Lipper fund flow report, sellers withdrew $17.5 billion from conventional exchange-traded funds last week. Equity funds and money market funds led the way. This is the second consecutive week of releases for both.
The losing bond ETFs were the SPDR Bloomberg High Yield Bond ETF (JNK) and the iShares iBoxx $Investment Grade Corporate Bond ETF (LQD), as they also saw the largest weekly outflows.
That said, junk bonds have been an extraordinarily reliable leading indicator for risk over/risk/neutral/risk off.
To start the data-heavy week, what do we need to do with junk bonds to keep the rally in equities going?
Junk bonds offer higher returns on investments because ETF companies generally tend to have poor balance sheets. Therefore, if bond traders buy junk bonds, they are confident that the market will rise.
The chart shows that if SPY is above the blue line or 50-DMA, junk bonds (JNK) aren’t quite there.
If some of the headwinds don’t prove so disruptive (CPI lower, rail strike averted, rates steady, dollar not strengthening), then we’ll see that in the JNK chart.
The 50-DMA will penetrate which will further embolden the bulls, perhaps bringing SPY closer to 420.
However, if JNK retraces and breaks below 93.00, we would consider this a warning for the bulls.
Investors should always keep an eye on fund flow data when making investment decisions. It can provide valuable insight into the sentiments of other market participants about a particular asset class or sector.
Traders can gain a market edge using MarketGauge’s proprietary technical analysis tools such as the triple play indicator, comparable market phases, downside momentum, volume and strength analysis Positive Trend (TSI), and used in conjunction with the Modern Family to make more informed business decisions.
To learn more about how to identify trend changes using indicators and the modern family, contact via chat, phone, email or make an appointment with Rob Quinn, our strategy consultant in chief, by clicking here.
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ETF Trading Analysis and Summary
S&P 500 (SPY) 408.82 support and resistance 413.55
Russell 2000 (IWM) 187.29 support and resistance 190.84
Dow Jones Industrials (DIA) Support at 322.04 and resistance at 326.62
Nasdaq (QQQ) Support at 309.61 to resistance at 312.61
KRE (Regional banks) Support at 64.12 resistance at 65.20
SMH (Semiconductors) 213 support and resistance at 220
IYT (Transportation) Support 236.82 and resistance 238.75
IBB (Biotechnology) Support 127.12 Resistance 128.52
XRT (retail) support at 66.47 and 67.75 is resistance
The author may have a position in the titles mentioned 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.