Stocks are currently taking it on the chin, having erased several months’ worth of price action in just three trading sessions. In this context, the number one question for traders is if this is just a garden variety correction or the start of something bigger.

My money is on it being a “garden variety correction.”

First and foremost, High Yield Credit is failing to confirm this down move. High yield credit (junk bonds) is typically the “canary in the coal mine” for macro changes. The reason for this is that junk bond investors are investing in an asset class that has a relatively high risk of default even under the best of circumstances.

Put simply, these individuals need to be extremely sensitive to macro downturns to insure they don’t end up losing a LOT of capital. With that in mind, I want to note that the high yield credit ETF (HYG) is failing to confirm this downturn in stocks. In fact, HYG is moving UP to retest its all-time highs!

This strongly suggests that stocks are “overdoing it” with this drop. If the economy was indeed turning downward, HYG would be dropping along with the S&P 500.

It isn’t. And this is a major signal that this correction in stocks is likely to prove short-lived. Indeed, I fully believe stocks are poised for a “rip your face off” rally in the coming weeks.

You’re probably wondering how can I act so carefree about stocks today when there are clearly so many issues in the world?

The answer is simple: I have proprietary triggers that hit before any major market break-down. Until one of them goes off, the market is telling me that stocks aren’t concerned about the issues/ risks.

To figure that out, I rely on certain key signals that flash before every market crash.

More By This Author: