Is the Next Leg Up Getting Under Way?
The markets bounced yesterday as we suggested.
Remember, the Fed has spent TRILLIONS of dollars reflating the credit markets. So, with those same credit markets breaking down yesterday, the odds were high that the Fed would step in.
Sure enough Junk Bonds rallied hard. This reversal looks a lot like the one that occurred in June before the next major leg up for stocks (red circles in chart below). High yield bonds (HYG) broke support (blue line in the chart below) before suddenly reversing and rallying hard.
We need to see some follow through, but this is a good start.
It’s a similar story for stocks. The S&P 500 held support (red line in chart below). However, we need to see an upwards breakout of the falling bullish wedge formation (blue lines in the chart below) for the “all clear” signal to be in place.
Bottomline: things have improved dramatically, but we’re not out of the woods yet. If we get some follow through today and Monday, the next major rally could finally be here.
Editor, Money & Crisis