This first chart is a ratio of high yield bonds to corporate bonds. I use these first two charts as a measure of sentiment and risk appetite in the credit markets. #1 shows a great example of RSI divergence blow-off in late 2010. We can see a similar divergences building on this current run up.
Since the tops are spread out, does that mean this can persist a while longer?? Regardless, this indicator tells us investor risk appetite is getting excessive. The question is how excessive will it get?
There are also similar divergences building in HYG / Treasury Bonds. This also offered RSI blow-offs in late 10' / early 11'. This chart simply confirms what we are seeing in the first chart. Also, the divergences are interestingly flat vs HYG / LQD. Does that tell us anything??
In the indices SPY & IWM we are seeing a possible variation of divergence blow-off in. Ideally in a blow-off, we would see some parabolic upside action, followed by a sharp decline. However, as I look around many people are expecting this...
IWM is confirming the divergence break we are seeing in SPY.
I'd love to hear some thoughts on this. You can comment or tweet me @a_jackson on stocktwits
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