Junk in the Trunk While Energy Rides Shotgun

The glaring weakness in high yield corporate paper is getting plenty of attention as this week unfolds, using HYG JNK as proxies. Typically, the type of heavy and steady selling we have seen with high yield corporates and junk bonds often spells trouble for debt-ridden energy firms. 

However, with XPO, one of the higher beta sector ETFs related to the energy complex, bull-flagging below on its daily timeframe after breaching a cockeyed but valid inverse head and shoulders bottom (outlined) higher, the issue must be probed as to whether most bad news related to energy has already been priced in, or baked into the cake of the prior bear market for oil and indeed virtually the entire energy complex. 

If the answer to that question is yes, then what we are seeing now is a to-good-to-be-true trap to lure in energy shorts who are using HYG JNK as determining factors. 

Ultimately the market is the final arbiter, which means that as long as energy stocks continue to defy negative divergences and even broad market selloffs, as we are seeing today, the case for a new energy bull run can be deemed increasingly viable by the day.