Early in 2023, the S&P 500 broke out above the year-long downtrend line that everybody has been watching, and it has been struggling somewhat bit in February 2023 making an attempt to increase that breakout. Whereas it appears like only a pause for the S&P 500, the underlying weak point is clear once we look elsewhere, particularly among the many investments that are essentially the most susceptible to liquidity issues, the high-yield company bonds.

HY bonds commerce extra just like the inventory market than like Treasury bonds, as a result of HY bonds are topic to the identical vicissitudes of monetary market liquidity waxing and waning. FINRA publishes the info on advances and declines on daily basis right here, and it can provide helpful insights for the inventory market. One may even make the case that the HY Bond A-D Line serves as a greater canary within the coal mine than the composite NYSE A-D Line.

This A-D Line began exhibiting us an enormous bearish divergence in late 2021, even forward of the beautiful large divergence within the NYSE’s A-D Line. That bearish divergence appropriately foretold the terrible market weak point we endured in 2022.

There isn’t any bearish divergence exhibiting now, however we’re seeing a all of the sudden weak HY Bond A-D Line. It peaked on Feb. 2, 2023, the identical day because the S&P 500, however, since then, it has been falling nearly each day and has now dropped beneath its 5% Development. Having it beneath that exponential shifting common (EMA) is what occurs throughout worth downtrends.

The message is that monetary market liquidity has all of the sudden left the constructing, and that that is going to come back round and chew even the big-cap shares. They’ll muscle apart the little guys for some time, like the massive pigs on the feeding trough, however ultimately it impacts them too. The susceptible ones are extra helpful on this respect, exhibiting us that the liquidity is drying up forward of time.