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Featured Trade (U.S ETF): High-yield bonds bearish reaction from key resistance

Medium-term technical outlook (1-3 weeks) on U.S. High-Yield Bonds (JNK)



click to enlarge charts

Key technical elements

  • The recent 8.5% rebound of JNK (the ETF of the SPDR High-Yield Bond Index) from its 26 Dec 2018 low of 32.92 (in line with the S&P 500)  on the backdrop of an impending positive outcome of a U.S/China trade deal to resolve the on-going trade war and a “patience” Fed on its interest rate normalisation policy has started to show signs of bullish exhaustion.
  • Its recent price action has started to stall in past 6 trading sessions right at the key major resistance of 35.68 as per defined by the upper boundary of a primary descending channel from Jun 2014 high, the former swing medium-term swing lows area of 05 Feb/19 Mar 2019 and a Fibonacci retracement/expansion cluster.
  • Yesterday (06 Mar) price action has staged a breakdown below the lower boundary of a medium-term bearish “Ascending Wedge” range configuration in motion since 14 Jan 2019 low.
  • The daily RSI oscillator has started to exit from its overbought region with a prior bearish divergence signal. These observations reinforce the medium-term upside momentum of the recent rebound from 26 Dec 2018 has started to ease.

Key Levels (1 to 3 weeks)

Immediate resistance: 35.55

Pivot (key resistance): 35.68

Supports: 35.07 & 34.70

Next resistance: 36.06

Conclusion

If the 35.68 key pivotal resistance is not surpassed, the JNK may see a further down move to target the supports at 35.07 and 34.70 (23.6%/38.2% Fibonacci retracement of the rebound from 26 Dec 2019 low to 26 Feb 2019 high & congestion area of 28 Nov 2018/10 Jan 2019) in the first step.

On the other hand, a clearance above 35.68 invalidates the bearish scenario for a further corrective squeeze up towards the next resistance at 36.06 (swing high areas of 27 Aug/27 Sep 2018 before the occurrence of the waterfall slide towards the 26 Dec 2018 low).

Charts are from eSignal



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