High yield bond (JNK) update

The term "high yield bonds" is a euphemism for bonds of dodgy character which are so high in risk of default that they have to carry a high yield for anyone to want them.  The market term for them is "junk bonds".  These bonds have been propped up by all of the stimulus of the past 5 years and pension funds have been scooping them up in an attempt to try to upgrade their funding status.  Many people are still not aware of just how badly the US pension system is underfunded even after the huge market bounce since 2009. 

This graph clearly shows how junk bonds were in free fall before Bernanke stepped in with his extend and pretend strategy.  Despite record amounts of stimulus and unprecedented radical fed policy these bonds have not regained their pre-2008 price levels:

Below is the action since about Feb of 2012.  In late January of 2013 I recognized that an ending diagonal was forming and I posted about it here.  As you can see from what followed below, the chart did break down as expected even though it took longer due to an unusually long back testing.  The herd knows how to meander when it wants to and JNK was not going to crash in a vacuum.

After the back test from below finally failed, it turned into the goodbye kiss with 5 waves downward.  Those waves down were clearly motive waves.  While it is not 100% clear to me that the count is right for that 1st wave down, I'm going with it as shown below for now until I get other evidence that it is wrong.  The main issue I have with it is that it could be an a-b-c count instead of a 1-2-3-4-5 count.  If it turns out to be a-b-c then this implies it is part of a larger triangle structure.  It's just something to keep in mind as the waves play out.

In any case, the ending diagonal that I have marked as 2 seems to have broken down now.  Anyone looking to short this should us the trend lines below as stops.  In other words, if this breaks back up above either of the trend lines then an unexpected pattern is playing out and the sidelines are where the smart trader will go until the pattern clears up.  But again, there is enough data right now to short these shares.  The beauty of this trade is that the stops will be very tight, well under 1%.  Also, if there is going to be volatility in this ETF it will most likely be to the downside.  So it is unlikely that they will gap up, say 5% one morning leaving you with  5% loss to cover.  Nothing is impossible of course but the building of this 2nd wave has been corrective, not motive.  Time will tell.