Lotto

HYG $75 weekly puts (5 DTE) are 10 cents. The puts all the way up are cheap too, if today is a bull trap. Looking at how badly governemnt bonds and energy are performing today for stocks (bonds down, energy up), that seems possible. The only analog for the current situation is the 2008 financial crisis, and HYG is more oversold now than it was then. That does mean a low could be here or that the capitulation low is still ahead.

Credit Deteriorating, Bulls Taking Hits and Doing Nothing

Apple and Microsoft fell 10 percent the past two days, and still no spike in VIX. Credis spreads are now jumping because high-yield bonds are sliding with stocks and government bonds have started rallying.

I like TLT short-term here, but the long-term picture also looks pretty good here. This could be a major low in TLT underway.

A Line in the Sand

=High yield ETF HYG approaching a breakdown, similar chart for JNK. A rise in credit spreads is kryptonite for the bulls, almost stocks always drop when credit risk spikes.

Chipotle lost its March 2020 trendline this morning, but won't accelerate down until it breaks last week's low.

Energy too.

Disaster in the making: junk bond sales surge; Europeans borrow in U.S. dollars

Record global sales of junk bonds

Junk bond issuance totalled a record $19.6bn last week, including a sizeable chunk of debt that European companies sold in the US, according to Dealogic, the data tracker.
“Lingering concerns about Europe and the strong US rally have pushed many issuers into the US high-yield market,” analysts at Barclays Capital said in a research note.

Credit is tight in Europe, so business is turning to the U.S. credit market where junk bond is near its highs. If, a big if, these firms have substantial cash flow, they are getting good prices for their debt. However, this debt could increase by 20% if the U.S. dollar rallies to parity. The economic environment would be terrible and a lower euro would only mitigate some export losses during the contraction. For investors, there's nothing to like here because this is junk debt that will collapse in price during a slowdown.

Below is a chart of iShares iBoxx $ High Yield Corporate Bond (HYG) and SPDR Barclays Capital High Yield (JNK). The volume at the bottom is for HYG. Investors have been piling into these funds well after they've recovered, chasing yield as Bernanke holds rates low. It's a great investment as long as there's no instability in the markets—a bad bet in my opinion.