Corporate bonds have moved from "fire sale" to "on fire" - but the LQD and HYG charts are moving to overbought levels

Faith in the economic system is definitely showing up in the corporate bond ETFs, both LQD for investment grade corporate bonds, and even in HYG for the high-yielding bonds. I've included daily charts of each (at right), and below are weekly charts of each.

On the weekly charts in particular, you can see that LQD has (not surprisingly) shown more relative strength, reaching even higher levels than seen during 2007. HYG has retraced a little over 78.6 percent back to its highest levels of 2007.

The chart pattern is beginning to look a little hot - a little parabolic - but not totally, screamingly so. Still, I made notes on the LQD chart of Fibonacci extension levels, just in case LQD does go a little higher to reach a level where it may peak out. Going along with that idea, you can see that the standard RSI readings for both have now moved above 70, meaning they can be considered overbought. This is true for both, on the daily charts; and for LQD, on the weekly chart too.

If they do pull back, then moving average support as well as levels I've suggested for HYG on the weekly chart may be places to look for support.

If LQD really is making a reverse symmetrical triangle (which is not always an Elliott Wave pattern) on the weekly chart, then it could be susceptible to a very good pullback. I'd like to see it test a bit higher to one of the Fibonacci level I annotated onto that chart, first. Then of course the next step would be a chart pattern with a trigger bar suggesting either a pullback or a trend reversal.

Given the recent volumes, it would take some noticeably heavier selling volumes on down days to mark a chart pattern as a trend reversal.

But as always, first things first - look for LQD to, ideally, move higher about $108/110 area, and then start to weaken. As for HYG, given that it's reached a significant Fibonacci level, it should weaken sooner ... and, if HYG does slow down, but then come back to this level, then perhaps it has higher levels too. I'm hard put to think of what economic conditions might cause that to happen. Perhaps the better question is, if and when these do start to roll over, what are the target levels below? And the answer to that will be partly a matter of the Fibonacci and chart patterns, and partly of the economic conditions we seem to be facing in the months ahead.