An Encouraging Turn in Sentiment

The market continues to work its way through the corrective process. It still hasn't reached a confluence of oversold signals that would suggest the pullback has run its course, but bearish sentiment is on the rise -- a positive development. At the same time we fail to see bearish sentiment rising in other areas, such as higher yield debt, which would suggest there are no real concerns about changes in the economic landscape.

Equity prices have worked their way steadily lower since September, but we have not seen high-yield bonds keep pace on the downside. High-yield debt has gained relative strength and formed a divergence vs. the S&P 500, which to us suggests the pullback in equities is corrective in nature and that traders are not overly concerned about economic issues at the moment. See the chart below, which plots the iShares iBoxx $ High Yield Corporate Bond (HYG) against the S&P....294 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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