Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us.

My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. And, I’m featured in the book Market Wizards, alongside investors like Paul Tudor Jones.

But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it…

When it comes to the economy, all roads lead back to the Fed… More specifically, interest rates.

Any time the Federal Reserve moves rates, it has a direct effect on all consumers… from their mortgage to car loans. And that all flows into the broader economy.

However, what’s not always obvious is how a change of interest rates affects the flow of money between assets.

For example, when interest rates start to fall, money flows into riskier assets (like junk bonds) as investors chase higher returns (yields).

Now, with interest rates about to rise, money is starting to flow back into assets like government bonds.

Last week, I discussed this pattern and its impact on the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) marked by the red arrow below.

Today, I want to update you on this chart because after the recent price action, HYG is starting to look interesting…

iShares iBoxx $ High Yield Corporate Bond ETF (HYG)


Source: eSignal

When we checked out HYG, it had been in a downtrend since September. Having hit its 2021 peak (1), it then made lower highs at ‘2’ and ‘3’.

Each of these moves were punctuated by dips in the Relative Strength Index (RSI – lower half of the chart). At both ‘A’ and ‘B’, the RSI fell into oversold territory (below the lower grey horizontal line), before forming a ‘V’ and sending momentum (and HYG’s share price) back higher.

With the RSI again closing in on oversold territory (on January 24), HYG was about to face an important test…

I was looking to see if HYG could hold a key support level (green line). A break below that would add further weight to the emerging downtrend.

HYG not only broke support, but went on to fall to its lowest level since November 2020. Now it’s scraping around its 15-month lows.

I also looked for growing divergence between our moving averages (MA). When that happens, it gives further proof that a move in either direction is gaining momentum.

Since we looked at HYG, the 10-day MA (red line) has been accelerating away from the 50-day MA (blue line) – adding to the bearish sentiment.

However, action over the next few days will be critical in what direction HYG takes from here…

So, let’s take another look at the chart…

iShares iBoxx $ High Yield Corporate Bond ETF (HYG)


Source: eSignal

The RSI has recently formed a ‘V’ (marked C) and is showing HYG as oversold again. So, a bounce (however brief) could soon be in the cards.

If HYG bounces, then its first test will be to see if it can rally back up to that green line.

(A previous support line can change into resistance once a price breaks through it – and vice versa.)

However, if HYG fails to break above the green line – meaning that previous support level has become resistance – then that’ll also mean that HYG has made another lower high.

And, that would further confirm a downtrend. From there, we could expect HYG to re-test its January 28 low as that downtrend gains momentum.

When a stock falls like HYG has, you can always expect a bounce. The deciding factor is how strong that bounce will be.

If HYG bounces but runs out of momentum, we need to be ready to sell into any strength.


Larry Benedict
Editor, Trading With Larry Benedict

Reader Mailbag

I always look forward to receiving positive feedback from my readers. Here’s some of the latest responses…

Mr. Benedict,

Thank you so much for producing a newsletter that is super informative. I always learn valuable trading details with each letter!

– John D.

Larry, I joined your service after COVID began because I wanted to learn from someone that could battle the markets that we are experiencing. We didn’t fare well the first year, but I remembered your personal story when you first entered the marketplace. You failed but eventually figured out how to make it work.

The same is happening with this service. It’s now working, and it’s the reason I joined. Not many can say they made 50% in the last 30 days! In 2018 I lost 12.5% in one day and 25% in about 30 days… what a difference. Thanks for your help.

– Eric M.

Larry, I love your S&P Trader spread trading service. I find this so much more interesting and fast moving than stocks. And it has been profitable for me as well.

I am a newbie to options. I signed up last September. I spent several weeks watching, learning, and studying trade history for this subscription while I waited for my stupid brokerage to get my options account approved.

Then, they weren’t going to approve me for advanced (needed for vertical spreads) options trading due to my lack of options trading experience until I told them I am trading with Larry Benedict.

December was my first 7-day blitz. I took it easy and followed my limits and rules. In hindsight, my rules may have hindered the potential for that week. Still, I did quite well with several contracts. Your exit timing was spot on.

I was really happy you started providing more trade recommendations and the weekly reviews. The more you explain, the better.

By the way, I just signed up for a lifetime subscription. So, keep those recommendations coming!

– Steve G.

Thanks for taking time to create this issue. Excellent job and information. Thanks.

– Marcus M.

P.S. We’re excited to hear what you think of your new eletter, Trading With Larry Benedict. Let us know at [email protected].