This post’s theme is essentially “if only the following could happen……….” In other words, if any of these given charts undergoes a certain transformation, it would change the tone of the market.
We start with the high-yield bond fund JNK. This is clearly grappling with a major resistance line (which is the base of its giant top). If it continues to fail to penetrate above this line, and indeed if it turns lower to break the series of “higher lows”, the bears’ chance of success this year will go up markedly.
Here we see the small caps by way of IWM. If this pattern is completed – – that is to say, if the price pushes above the top of the green tinted area, the bears are pretty much ruined for 2023. On the other hand, if we slip out the right side of this pattern (and we’re awfully close), it would spoil the pattern utterly and change the tone of equities for months to come.
One powerful representation of how the market is over its proverbial skies is the layered chart of the HYG and SPY. The recent red area represents the growing chasm between high-yield corporate bonds (lower line) and the equities (upper line). The divergence is bound to resolve.
Lastly, the Dow Financial Sector offers us two tidbits. One, it is also at risk of slipping out of its basing pattern (similar to IWM, above), and second, if it does so, it will fully resolve the long-standing face-off between these two opposing patterns in favor of the bears.
