“We can also see that each rally was done on declining volume. When traders take a security to new highs or levels of resistance, they often look for heavy volume to be present,” he added. “Large volume tells us that there is a lot of demand for shares, which we don’t seem to be seeing in HYG. Instead, each rally attempt has been on dying volume, giving traders less confidence that resistance can be broken.”
Also, recent ETF flows indicate some investors are shifting away from high-yield bonds and into higher-quality corporate debt funds such as iShares iBoxx Investment Grade Corporate Bond (NYSEArca: LQD). [Corporate Bond ETFs: Investors Favoring Investment-Grade Over Junk]
In November, options traders have pushed bearish short bets against high-yield ETFs to all-time highs. [High-Yield ETFs Suffer Outflows Amid Record Bearish Bets]
“With that said, there is still some hope for HYG … this market is currently swaying to the words of Congress,” Thrasher concluded. “If we get a debt deal then there’s a definite possibility that the $93 level can be taken out and bulls will maintain in control.”
HYG has posted a total return of 10% year to date, according to Morningstar. The ETF has a 12-month yield of 6.8%, according to manager BlackRock (NYSE: BLK).
iShares iBoxx High Yield Corporate Bond
Chart source: www.athrasher.com
Full disclosure: Tom Lydon’s clients own HYG, JNK and LQD.