How To Trade Bonds And Utilities Using ETFs

|
Includes: JNK, TLT, XLU
by: Richard Suttmeier
Summary

Investors can trade U.S. Treasury bonds like a stock using the 20+ Year Treasury bond ETF.

Investors seeking dividends can trade the Utilities Select Sector SPDR Fund.

Investors should avoid junk bonds particularly the SPDR Bloomberg Barclays High yield Bond ETF.

Bond yields may be rising, but with volatility comes trading opportunities.

The 20+ Year Treasury Bond ETF (NASDAQ:TLT)

The U.S. Treasury 30-Year Bond ETF trades like a stock and is a basket of U.S. Treasury bonds with maturities of 20+ years to 30 years. As a stock-type investment it never matures, and interest income is converted to periodic dividend payments.

The Treasury Bond ETF ($118.99 on May 4) is down 6.2% year to date and is below its 50-day and 200-day simple moving averages at $119.51 and $123.52, respectively.

Weekly Chart For TLT Courtesy of MetaStock Xenith

The weekly chart for TLT is negative with the ETF below its five-week modified moving average of $119.74, and below its 200-week simple moving average or “reversion to the mean” of $124.80 as it’s been since the week of Jan. 19. The 12x3x3 weekly slow stochastic reading slipped to 40.92 last week down from 42.50 on April 27.

Investor Strategy: Buy weakness to my monthly value level of $117.07 and reduce holdings on strength to my quarterly risky level of $122.01.

Investors seeking the safety of dividends can trade the utilities ETF, which is a basket of 28 utility stocks. The current dividend yield is 3.4%.

The Utilities Select Sector SPDR Fund (NYSE:XLU)

The Utility Stock ETF ($51.51 on May 4) is down 2.2% year to date and is between its 50-day and 200-day simple moving averages of $50.19 and $52.63, respectively.

Weekly Chart For XLU Courtesy of MetaStock Xenith

The weekly chart for the Utilities ETF is positive with the ETF above its five-week modified moving average of $50.66 and above its 200-week simple moving average or ‘reversion to the mean’ at $48.01, which was tested at the Feb. 6 low of $47.37. The 12x3x3 weekly slow stochastic reading rose to 71.25 last week up from 64.40 on April 27.

Investor Strategy: Buy weakness to my monthly value level of $49.74 and to the 200-week simple moving average of $48.01 and reduce holdings on strength to my quarterly and annual risky levels of $52.62 and $54.46, respectively.

Investors should avoid junk bonds as they correlate more to stocks than U.S. Treasuries, and stocks remain vulnerable.

SPDR Bloomberg Barclay’s High Yield Bond ETF (NYSE:JNK)

The Junk Bond ETF ($35.71 on May 4) is down 2.8% year to date with the ETF below its 50-day and 200-day simple moving averages of $35.92 and $36.66, respectively.

Weekly Chart For JNK Courtesy of MetaStock Xenith

The weekly chart for the junk bond ETF is negative with the ETF below its five-week modified moving average of $35.93 and below its 200-week simple moving average or the “reversion to the mean” of $37.04 last tested during the week of Nov. 14, 2014 when the average was $40.08. The 12x3x3 weekly slow stochastic reading slipped to 38.24 last week down from 38.72 on April 27.

Investor Strategy: Buy weakness to my semiannual value level of $33.99 and reduce holdings on strength to my annual and quarterly risky levels of $37.15 and $38.80, respectively. My monthly pivot is $35.79.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.