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A leading indicator for stocks is breaking down.

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A leading indicator for stocks is breaking down.

Rebecca Ungarino November 9, 2017
One leading indicator for the equity market is breaking below a key support level, a move that could
have negative implications for stocks.
The iShares high-yield corporate bond
exchange-traded fund, the HYG, has
fallen below its 200-day moving
average, which it had held above for
much of this year. This move concerns
Matt Maley, equity strategist at Miller
Tabak. Here’s why.
• The high-yield market has begun
selling off in the past week, Maley
wrote in an email to CNBC, leading the
HYG to decline. As the 200-day
moving average has proved solid
support for the ETF, “this raises some
concerns in my mind,” he wrote.
• However, it would have to fall below
its August lows of 87.15 to “raise a
yellow warning flag on this asset
class,” he added.
• While the drop below the moving
average is not a major problem just
yet, he said, he’ll be watching closely to see if the market shows further signs of weakness in the
weeks ahead given the ETF’s record as a strong leading indicator for stocks.
• The HYG and the S&P 500 have been closely correlated since late 2015, and the ETF is barely
positive on the year.
Bottom line: The high-yield market is beginning to flash a warning sign for the broader
market.