The Relationship between My Junk, SPYing and the Treasury

Many traders and analysts use the triangular relationship between the SPDR Lehman High Yield Bond ETF, $JNK, the iShares Barclays 20+ Year Treasury Bond Fund, $TLT, and the S&P 50 SPDRs, $SPY, to gauge where equity markets may head. The view is that as $TLT rises $SPY and $JNK fall, or as $JNK falls the $SPY will follow and $TLT rise. Any one could be the catalyst with impact on the others. These moves do not always happen at the same time though and may lead to signs of a false move or an opportunity to trade the laggard. Below are the charts for each on a 30 minute time frame for the last 10 days. Notice how the $JNK and $SPY exhibit the same

Price pattern, gapping lower September 22nd with a slight rise through to the 27th and then a move lower from the 27th through the 28th. The $SPY gapped higher on the 27th and lagged the move lower but they moved very much in tandem. The $TLT did the inverse, gapping higher the 22nd. Since the 23rd it has been falling with the $SPY and $JNK slightly rising and then stable the 27th. But then Wednesday the 28th, it went no where while the $JNK and $SPY sold off big. With the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators for $SPY and $JNK suggesting more downside on this time frame and those same indicators supporting an upside for $TLT, it seems this is may be an opportunity to get long the $TLT, at least for a short term trade if this continues.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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