U.S Junk Bonds May Surge Higher Despite Repo Funding Squeeze

U.S. junk/high-yield bonds are still exhibiting positive technical elements.

SPDR Bloomberg Barclays High Yield Bond ETF (JNK)

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Key Levels (1 to 3 weeks)

Pivot (key support): 107.70

Resistances: 109.46, 111.00 & 112.78

Next support: 105.55

Directional Bias (1 to 3 weeks)

Bullish bias in any dips above 107.70 for JNK and a break above 109.46 reinforces another potential upleg sequence to target 111.00 follow by the next significant medium-term resistance at 112.78.

However, a break with a daily close below 107.70 negates the bearish tone for a corrective slide to retest the major range support at 105.55.

Key elements

  • Since 30 Apr 2019, the price action has evolved into a 5-month “Cup & Handle” range configuration after a prior multi-month uptrend from 28 Dec 2018 low of 98.77. The “Cup & Handle” range configuration tends to indicate a potential bullish consolidation phase after a prior uptrend and a break above the “Cup & Handle” range resistance triggers the start of another up-trending phase.
  • The “Cup & Handle” range resistance stands at 109.46.
  • Momentum remains positive. The daily RSI oscillator has staged a leading bullish breakout from a significant corresponding descending resistance (in parallel with the Cup & Handle resistance). In addition, the daily RSI oscillator has not reached an extreme overbought level.
  • The 112.78 medium-term resistance is defined by the former major range support from May 2012/Dec 2014, the exit target projection of the “Cup & Handle” and the 0.764 Fibonacci expansion of the prior uptrend from 28 Dec 2018 low to 30 Apr 2019 high projected from 03 Jun 2019 low.

Charts are from eSignal 

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