There are several indicators to watch when assessing risk across the financial markets, and today we discuss one of the more important ones.

Junk bonds.

When junk bonds are performing well and in demand, that is a sign of “risk-on”. But when they are underperforming, that is a sign of “risk-off”. And the latter applies to today’s marketplace.

Below is a chart of the Junk Bonds ETF (JNK). As you can see, a year-long narrowing pennant pattern formed and appears to be breaking down

In the past, junk bond weakness has been followed by stock weakness; will it be different this time?  

(Click on image to enlarge)

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