Not Much New to See, But Still a Lot to Lose

Published August 08, 2017 - 7:30 AM

“It’s hard to find something new to say when nothing new happens.”

That was my 15-year-old son’s response to me when I asked him “What’s new?” after I hadn’t seen him for a week.

Such is the life of a teenager approaching the end of summer vacation. The doldrums are setting in. After several days of inactivity, my son is getting restless for some action.

Me too.

Recommended Link

EXCLUSIVE FREE EVENT: "Discover the breakthrough new formula backtested and proven to generate average gains of 106%, with 91.4% certainty."
In a back-test spanning 1988 to 2017, Doug Casey's research team discovered a pattern they could use to identify tiny stocks with the potential to go up 700%, 800%, 900% or more with 91.4% accuracy... Now they've reverse-engineered a blueprint – a formula for helping you find stocks that share the same characteristics in today's market. And it’s historically proven to pay an average return of 106%. To prove this system's accuracy to you, Doug Casey and E.B. Tucker are hosting an exclusive online training event to reveal how it works – why it's so effective right now – and giving you the name of one stock to watch on Thursday, August 10th, at 8 pm ET so you can see the proof of how effective his formula is with your own eyes. Register here for FREE because you want to make sure you don't miss this.

--

I haven’t done much trading over the past two weeks. The S&P 500 has been stuck in an eight-point range. The Dow Jones Industrial Average has managed to make new highs. But, it has been a series of small, incremental moves – not the sort of rocket-blast rally that creates rapid-fire trading conditions.

And as I performed my weekly chart review this past Saturday morning – where I scour through about 750-800 charts trying to find interesting setups for the coming week – I kept repeating the words of my son…

“It’s hard to find something new when nothing new happens.”

Most charts are a mess. They don’t offer any discernible, low-risk trading patterns. Most technical indicators are in neutral territory – not giving an edge to either side.

Indeed, the one chart that really stood out to me is the same chart that has stood out for most of the past three months. It’s the weekly chart of the iShares iBoxx High Yield Corporate Bond Fund (HYG). I’ve shared it with you a couple of times before – along with the warning that when this chart finally does break down, we can expect the stock market to weaken as well.

This time, though, I added a new indicator.

Take a look…

This is a MASSIVE bearish rising wedge formation with negative divergence on the MACD momentum indicator. You’ll recall that negative divergence forms when a chart rallies to higher highs while the technical indicators form lower highs. It’s often an early warning sign that an uptrend is coming to an end.

On this chart, I’ve added the five-week Relative Strength Index (RSI). This is another technical indicator that helps evaluate the strength of a trend. While junk bonds have been trending higher all year, the RSI peaked back in March. It has formed two lower highs since then.

The RSI showed similar negative divergence from last July through October. That action preceded a 5% decline in HYG in November – which occurred at about the same time as the S&P 500 sold off about 4%.

So, even though there’s nothing new in the price action of HYG from when I wrote about it last month (and the month before that), traders should still keep an eye on the chart.

If/when it breaks down, the targeted move is all the way down to the 50-week moving average line at about $85.15. That should be enough to incite a fairly decent selloff in the broad stock market as well.

Best regards and good trading,

Jeff Clark

P.S. How have you been trading in this static market environment? Send me your responses, along with any other questions or ideas, right here.

Jeff’s intuitive feel for short term market swings and his strong protective discipline have allowed me to lock in thousands of dollars in gains where I might otherwise have just ridden the markets up and down.” -Chris, a reader and “seasoned investment advisor” from Seattle

Jeff -- your picks and analysis have been nothing short of amazing. I have traded the market for many years but I must admit, I have NEVER seen something this good.” - Mike H.

In only 2 weeks of using the service I’ve booked over $10K in profits. Needless to say I’ve paid for my membership.” - Tony J.

I started following Jeff Clark Direct about 3 weeks ago… I bought a small investment from one afternoon to the next morning. About 11AM I got out and made 8K in less than 24 hours.” – D. Tilghman

Jeff Clark's Market Minute Archives