Stock Market Outlook for August 7, 2019 – EquityClock.com 📝

Junk Bond ETF relative to the Investment Grade Corporate ETF flashing a warning signal as the ratio breaks down.

Prudent during periods of panic and waterfall declines in stocks is to look for signs of strain in the economy that would suggest the move is sustainable.  We breakdown various economic reports within our seasonal models for subscribers, providing regular insight of what to look out for ahead.  These reports can give indication as to whether the decline in broad markets is fundamentally warranted or not and whether buying the dip is appropriate.  The fourth quarter is a prime example when the move lower in broader markets was not fundamentally warranted, something that we made clear to subscribers through that December breakdown.  We’ve issued our stance to subscribers in recent reports.  You can subscribe now to try out our reports for a month or for a year – cancel at any time.

One of the signs of strain that has caught our attention in recent days is the breakdown on the ratio of the High Yield (Junk) Bond ETF (JNK) relative to the Investment Grade Corporate Bond ETF (LQD).  The ratio had been holding a defined level of support for years, but last week that level of horizontal support broke.  The setup resembles a head-and-shoulders topping pattern with downside implications towards the 2016 lows.  Weakening credit conditions, as this indicator is warning, is often a leading indicator to broader economic and equity market vulnerability. – READ MORE (click here to see charts)