Market Bottom Conditions Not Yet Confirmed Though Credit Markets Remain Healthy

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Based on VIX options term structure, the current market correction is matching the fear readings seen at the November 2016 and June 2016 lows.

sp500 cboe volatility

Looking at the Russell 3000, we are oversold from a technical and breadth standpoint but have yet to see signs of strong accumulation (90% up days denoted by green circles) to confirm a market bottom.

russell 3000 mcclellan

In addition to signs of strong accumulation, I’d like to see a surge of MACD buy signals north of 20%. Currently we are at 11.44% and climbing.

russell 3000 macd

I continue to see this as a healthy pullback rather than a major top given the credit markets remain calm. Credit Default Swaps (CDS) on junk and investment grade bonds remain very low and are still resting near cycle lows.

sp500 junk debt

The junk bond market usually gets hit first during times of economic and financial stress and gave an early warning by peaking well before the 2015 top. It confirmed the market bottom early last year and is not currently showing any signs of deterioration. 

sp500 junk high yield

The same is true when we look outside the US. BofAML's Global High Yield Index is still confirming the overall market trend and not showing signs of divergence as it did in 2014.

 sp500 global high yield

Looking deeper into the global high yield market we see Europe and emerging markets at or near 52-week highs, confirming the economic strength we are seeing globally, and why we should continue to overweight international equities.

euro emerging market junk

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About Chris Puplava