Charts of the Day: Credit Risk Says Be Careful

While folks focus on the incredible gyrations in stocks, the kind of which are absolutely the norm -- for bear markets -- it's really the under the surface stuff that we need to keep watch over. If, that is, we're to assess more than simply whatever headline of the day happens to be pushing the market one way or the other.

Now, there's much below the surface to pay attention to, so we have to stay very organized day in and day out if we're to keep track of it all and keep our thesis evolving as conditions evolve going forward.

Again, while stocks are in focus, frankly, we should be paying as much (more actually) attention to the credit markets if we're to properly assess present and go-forward risks -- as the worst recessions and bear markets tend to occur amid massive credit bubbles (which we have), which ultimately burst.

So, along with all of the weekly and monthly data we crunch, we have our daily tasks to conduct as well. 

With regard to credit, here's a sampling of the stuff we track each day, along with a comment on the present look of each:

BIZD is an ETF that tracks an index of business development companies; the ones who have made and organized the lion's share of investments in the companies that currently pose great risk to the credit system. We track it to get a feel for how the market sees the current environment:


Well, that's not a good sign!

We also track the yield spread between a basket of municipal bonds and treasuries. Yes, there's serious credit risk currently among municipalities as well:


While the muni spread has come off of its incredible early-crisis highs (on Fed intervention), it's rapidly moving in the wrong direction once again.

We track the spread between a basket of junk bonds (below BBB rated) and treasuries, for obvious reasons (past recessions in red):


Very not good!

And here's a graph illustrating the average CDS spread (cost of insurance) for 10-year investment grade corporate bonds:


Troubling...

Bottom line: as long as the credit markets are exhibiting the kind of stress you simply don't see outside of recession, you don't go getting aggressive in the stock market...

Speaking of the stock market, while the day is still young, the rally I mentioned earlier is dissipating rapidly (but, again, it's a bear market, and the rallies come from out of nowhere -- and they're often big). Which isn't a huge surprise at this point given how the internals were looking an hour ago.

The following is off of our daily equity market checklist:

MARKET BREADTH AND VOLUME STATS (10:10am): 

• SPX VOLUME 8% BELOW AVE (BUT IT’S VIRTUALLY ALL IN ENERGY STOCKS, 54% ABOVE AVERAGE, AND CONSUMER DISCR 28% ABOVE AVERAGE, BULLISH RE; ENERGY (IT’S UP 8%), BUT NEGATIVE RE; CONS DISCR (IT’S DOWN .1%). ALL OTHER SECTORS ARE SEEING HUGELY LOW VOLUME ON AN UP DAY. 
• NYSE UP/DOWN VOLUME: 2181/1360 
• SPX ADV/DEC: 384/118 
• NASDAQ ADV/DEC: 1687/950