The New Year Could Be All About Junk Bonds

January 3, 2023

Mish's Daily

By Mish Schneider

Written by Michele Schneider and Wade Dawson

Now that we are one day into the new year, there are 2 pieces of advice we can give you.

First, is to learn a strategy-and then become a specialist in that strategy.

For example, why not pick phases? We love them. Mish wrote a book on them. And, once you understand the phases on a daily and weekly timeframe, your trading will vastly improve.

Secondly, learn to follow bonds. Sure, short-term bonds work well as do the 20+ year long bonds.

However, we are all about the high yield high debt junk bonds.

We basically use the bonds to determine risk on/off. And we find that quieting the noise, especially with the dreary forecasts for this year, helps us trade a lot better.

The chart of HYG (or JNK if one prefers) has been an excellent guide to the short and long-term market moves. It also keeps us out of harm’s way during the chop.

In June 2022, HYG bottomed. So did the market. Then, HYG had a phase change in July but could not quite get going enough to clear the 200-DMA. And so, the market sputtered.

Then the sharp reversal candle in October gave traders a good bottom risk point. The ensuing rally took the price right up to the December high and the 200-DMA.

Currently, HYG sits right under the 50-DMA. It also closed green on a red day in the indices.

That tells us that risk appetite remains regardless. HYG outperforms the SPY, and the momentum had a bullish cross while the momentum trades above the moving averages.

And most importantly, as experts in phases, it tells us to watch that 50-DMA carefully.

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For more detailed trading information, contact Rob Quinn, our Chief Strategy Consultant, to learn more about Mish's Premium trading service or our other trading services during a brief consultation.

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