Trading Nation

Traders whistle past bond market warning

High yield warning for stocks?

The bond market has an ominous message for stocks.

High-yield bonds, which typically lead stocks, are in the midst of a selloff. The two largest junk bond ETFs, the SPDR High-Yield (JNK) and the iShares USD High-Yield (HYG) are both down about 3 percent year to date. But according to some traders, the pullback is nothing to worry about.

"I say put these warning signals aside, I'm going to continue to trade the market to the long side." Todd Gordon, of, said Monday on CNBC's "Trading Nation."

Gordon said the market has seen several bad signs lately, including a selloff in commodities, transport stocks and Chinese stocks. However, he said none of these has reversed the upward trend in equities, but has only brought stocks back down to the moving average.

"The stock market has merely done a mean reversion," Gordon said. "The moving average has been rising, 2015 has been consolidation with no real downside movement."

According to Gordon's chart, HYG is nearing a support level created in reaching a double bottom of about 86. The ETF fell 0.4 percent to 86.88 on Monday.

David Seaburg, head of sales trading at Cowen and Company, said the high-yield bond drop has already been priced into stocks, with mining, metal and energy names all trading near 52-week lows.

Gold, which is down about 8 percent year to date, recently hit five-year lows. GDX, the ETF that tracks gold miners, fell to an all-time low Friday. And the energy sector is the worst performing sector in the S&P 500, down more than 14 percent for the year.

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"The equities have already been hit following the high-yield," Seaburg said, also on "Trading Nation." "I don't think we're looking at a signal that we're going to see a dramatic selloff at all."

Seaburg said he's more concerned about debt financing than debt defaults, because it could lead to more money poured into lower-quality companies.

"That's the scary part for me. What are those companies? Should you be invested in them? I think that's something that's really worth investigating," he said Monday.

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