By: Elliot Turner
One chart that I have been watching closely since the market pulled off of the January highs is that of high yield corporate debt–HYG is the specific ETF. In the chart below, notice how HYG topped out before the S&P and has lagged the broader market on this bounce-back thus far. Should investors start shying away from high yield corporate debt, that would mark a major shift in risk tolerance in the economy. I will watch this closely to gauge whether the latest down move is the start of a new wave down, or merely a correction.
I don’t use HYG directly to execute trades, but I do use it as a sentiment indicator. If the market grinds higher, while high yield debt moves lower, I will get more aggressive in shorting resistance levels. On the other hand, if HYG bounces back, that will provide a powerful indicator that the market should move higher.
