Hickey and Walters (Bespoke) submit:
Whether looking for signs of strength or weakness in a market rally or for confirmation of a downtrend, there are a variety of indicators investors like to analyze. Breadth measures and the percentage of stocks making new highs are two good places to look. Another indicator we like to watch is spreads on high-yield bonds relative to the yield of comparable Treasuries. Although they are considered to be safer on the risk curve than equities, high-yield bonds are one area of the fixed-income universe that trades similarly to the stock market.
When looking at a rally in the equity market, you typically want to see spreads on high-yield bonds moving in the opposite direction as equities. For example, if equities are rallying, you want to see spreads on high-yield bonds narrowing. This indicates that investors are willing to take on more risk, as they are demanding lower yields to compensate
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