By: Elliot Turner
The stock market has now put together a string of two consecutive doji closes on the dailiy while grinding oh so slowly higher. It is our job as traders to assess whether this is merely a bounce, or the start of another push higher. One key indicator that I use to gauge the market’s strength is the performance of High Yield Debt (the HYG ETF provides the best proxy for this). In reviewing my charts last night, one thing that struck me was the fact that although the market closed in the middle of its range yesterday, high yield debt closed on its lows, just above Friday’s support.
Since breaking down from its rising wedge formation in the middle of January, HYG has barely been able to put together a positive trading day. There has only been one, very small green bar and a couple of dojis since peaking out ahead of the market on January 12th. Watch this index at Friday’s lows. Should it trade through that level, the broader markets have a high likelihood of following-through to the downside. If, on the other hand, the index were to bounce, then that would portend more upside for the broader markets.
