HYG, JNK, LQD and MUB are four key bond ETF's that help paint a picture of markets. HYG and JNK charts are basically the same, both are high yield corporate bond ETF's. LQD is the investment grade corporate bond ETF and MUB is the municipal (muni) bond ETF. All four ETF's received the neggie d spankdown along with the broad stock market in late February and March.
That is when Pope Powell rode in on a white horse tossing money from his saddlebags to adoring traders and investors. The Federal Reserve begins buying bond ETF's announcing another one of their shameful financial schemes to help the rich so obscene it would make Caligula blush. Bingo. All four bond ETF's catapult higher along with the broad stock market. Traders are singing, "Happy Days Are Here Again," and really believe that the sky is truly blue again and all cares and troubles are forever gone, again.
HYG and JNK are not yet up to their February highs but they are making a strong showing. LQD is a different story. Yee-haw. Powell jumps on top of LQD pumpin' like he never pumped. Whhheeee! Whoopie! Machine buying is driving LQD price to the stratosphere. MUB, which would typically be expected to reflect perhaps more sensibility of the four, rallies higher with price exactly at the February highs.
Since HYG and JNK has not matched or exceeded the prior price in February, negative divergence cannot yet exist. However, LQD and MUB are telling a very interesting story.
MUB's a flub, it's cooked on the monthly long-term basis (months and perhaps years). Isn't that something? Most of you will say this is preposterous, even blasphemous! But the chart is what it is. MUB comes up for the matching price high and the chart indicators are in universal negative divergence. There is no more fuel in the gas tank. Price made it this high on the remaining fumes. The trading volume slips away. The stochastics are overbot, and RSI is a single hair from overbot and coming off overbot earlier this year (with money flow), agreeable to a pullback. The topping pattern is a double-top or M-Top.
MUB can be shorted from here forward. This is a monthly chart so the long-term prognosis is that MUB just contracted a serious illness and it is not covid but instead it is the start of a sick selling disease that will only become worse due to the neggie d. The coronavirus may serve as a catalyst to begin the MUB smackdown. Millions of Americans remain out of work. The state and local government coffers are drying up since folks not making money do not pay taxes to provide and maintain essential services. Potholes and rickety bridges will become a way of life. Healthcare services may be trimmed, firemen, garbage collection, all kinds of problems can develop. Suddenly, muni's do not look as attractive. If a rating agency issues downgrades in the muni arena down the road, Katy bar the door, it will completely fall apart.
The MUB weekly chart, with price just now squeezing out the matching high, comes with chart indicators universally sloping lower; ditto the daily chart. However, it cannot be official neggie d until price takes out the prior high. Interestingly, the monthly chart is good to go for pain and suffering ahead since price is at a matching or higher higher to make the neggie d official on the monthly. MUB may sputter around for a few days or week or so but if long use that time to git outta Dodge and/or flip short. MUB will likely trend sideways to sideways lower into the end of the year. The only thing that can change the outcome is more Fed shenanigans. Watch to see if the new stimulus bill, which Congress and the president will begin squabbling over today, will include funding to support state and local governments, or not.
For the LQD monthly chart, price is growing straight to the sky. Traders are fighting each other to grab shares. Big Jim stuffed Frankie's face into the ticker-taped floor as he bot the two big blocks of LQD coming across the feed. Pope Powell is carried around on the trading floor on trader's shoulders while they joyously sing, "For He's a Jolly Good Fellow." The so-called capitalism system is a complete joke. America is best described as a faux free market crony capitalism financial system that will now go through a decade or two of transition. The central bankers are the market, until they aren't.
LQD is in neggie d like MUB except for the long and strong MACD line. Therefore, LQD will retreat, on this monthly basis, along with MUB, say over the next month or two, but then LQD will come back up for a higher high in price on the monthly basis, say in August or September, to satisfy the juice available with the MACD. At that matching or higher high in price in August or September, the MACD will likely join the other indicators with negative divergence and LQD's goose will be cooked like MUB is now. The red rising wedge is an ominous pattern that can smack price wildly lower. MUB will likely rally back up when LQD does, say a month or so out after a one-month or more spankdown, but MUB will likely not come back up to its current highs.
The LQD weekly chart in universal negative divergence so a spankdown is on tap on the weekly basis which jives with a month or so of weakness ahead shown by the LQD monthly chart above. The MACD line is strong on the weekly chart so LQD may struggle sideways for a week or so but it and MUB should drop together as mentioned. The LQD daily chart is agreeable to a neggie d spankdown right now or anytime in the days ahead.
MUB will be oozing blood ahead. MUB and LQD can be shorted now going forward for the next month or so. MUB shorts can be held, or recycled, into year-end. LQD will come back up in August/September for another higher high and at that time it will be a great short and follow the path ahead as MUB which is lower through year end. Keystone is not currently long or short any of the four ETF's mentioned. There are great opportunities now in the indexes, ETF's and stocks on the short side. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
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