Exchange traded funds indexed to high-yield corporate bonds rallied Wednesday, which is usually a bullish sign for the equities market.
However, one technical analyst notes that high-yield funds are signaling weakness as the 50-day moving average crosses below the 200-day.
The iShares High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays High Yield Bond (NYSEArca: JNK) added more than 1% on Wednesday as they pared more of their losses from earlier this month. These bonds, known as “junk,” have higher yields to compensate investors for the additional credit risk. [ETF Chart of the Day: High Yield]
High-yield funds “can often be a great leading indicator for the stock market,” says Chris Kimble, head of Kimble Charting Solutions.
The 50-day average moving below the 200-day “doesn’t have a perfect batting average, yet the crossover hasn’t done too bad over the past few years,” Kimble wrote.