As we start a new month, quarter, and week, I want to remind you how I concluded the weekend Daily:

“Narratives are not very meaningful if price says something different. We have seen narratives change on a dime as price rules.”

Perhaps it is because of April Fools, but after a stellar ending of Q1, the session today began and ended with yields higher, the dollar stronger and junk bonds (HYG) weaker.

We often write about junk bonds as a barometer for risk on/off.

The reasons are simple.

In a risk on environment, investors have an appetite for buying companies with a lot of debt or poor balance sheets yet pay bigger dividends.

We also use HYG and its relationship to long bonds to calculate one part of our Big View risk parameters.

Is the narrative changing to more risk off?

Let’s look at the chart.

On the Daily, HYG stopped right at the January 5-month Calendar Range high (green horizontal line).

Although the price has been below the 50-DMA already (blue), today it broke it cleanly once again with a significant gap down lower.

77.00 is huge support and bulls want to see that level hold.

The ration between junk bonds and long bonds remains intact for risk on.

However, it does so marginally.

The momentum on HYG started to show a bearish divergence last week even as the market was making new highs.

It would be wise to watch how HYG does this week.

In the past, a break of support and a deterioration of its outperformance to long bonds have been warning signs, well ahead of a bigger market correction.

ETF Summary

S&P 500 (SPY) 520 pivotal

Russell 2000 (IWM) 212 next resistance 208 support

Dow (DIA) 385 support 400 resistance

Nasdaq (QQQ) 440 the pivotal area

Regional banks (KRE) 45-50 range

Semiconductors (SMH) 223 support near term

Transportation (IYT) 68 area support

Biotechnology (IBB) 140-142 resistance 135 support

Retail (XRT) 77 now support

iShares iBoxx Hi Yd Cor Bond ETF (HYG) 77 big number to hold. Over 78 risk ON

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