I wrote about long bonds TLT starting in June and how they could be the next big trade.

They were, but for a week or so only at this point.

The reasoning was that high yields would start to come down and the Fed would cut rates in September, potentially too little too late.

And that would spook the market to think that long bonds TLT had bottomed, not because investors were happy..

Rather, because they feared recession or worse.

By now, I am sure you have a lot about a credit event, or the dollar/yen carry trade.

And if you are like me you are wondering, how will I know when to shift trading gears or diversify your portfolio.

Long bonds have sold off from the October 2023 highs, which back then, led to a massive rally in equities.

Now though, things are different.

The recent sell-off in equities has led to more of a technical bounce.

And TLTs are back to support.

Which is why - I am totally focused on Junk Bonds HYG - as the layman way to sort out what might come next.

Incidentally, I would still watch instruments like IVOL as an inflation hedge.

The risk seems to lean more towards stagflation rather than recession.

When junk bond traders jump ship, then we know things are turning ugly.

Let’s look at the chart.

The July 6-month calendar range high and low is almost identical to the January 6-month calendar ranges.

Fascinating, as we have a yearly support level right where the 200-daily moving average sits.

Right now, besides failing the July range high, HYG does not look too bad.

In fact, we are still risk on as measured by HYG performance compared to TT performance.

However, the Real Motion momentum indicator is in a bearish divergence.

Hence, here is the plan.

If HYG holds here and clears back over 78.00, I would feel a lot better accumulating equities and anticipating the FED keeps the interest rate status quo.

But, if HYG breaks under the 50-DMA at 77.50 get cautious.

And if HYG fails the 200-DMA, get defensive.

That’s the bond traders worried that the days of high yield since 2022, are over.

ETF Summary

S&P 500 (SPY) 540 resistance with 505 next support

Russell 2000 (IWM) 210 resistance 199 support

Dow (DIA) 380 support

Nasdaq (QQQ) 430 support

Regional banks (KRE) 50-52 support

Semiconductors (SMH) 212 support 240 resistance

Transportation (IYT) 61 support 63.50 resistance

Biotechnology (IBB) Could not hold recent rally-but ok if maintains a price above 135

Retail (XRT) Time to watch Monday’s lows to hold

iShares iBoxx Hi Yd Cor Bond ETF (HYG) 77.00 the nearest key support

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