Treasuries Stabilize As Utilities Slump And Junk Bonds Set Their 2018 Low

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

The weekly chart for the 20+ Year Treasury Bond ETF remains negative but oversold, and yields declined slightly last week.

The Utilities Select Sector SPDR ETF flipped from positive to negative on its weekly chart last week after flip-flopping the week before.

The weekly chart for the SPDR Bloomberg Barclays High Yield Bond ETF remains negative as a new 2018 low was set last week.

The Global Debt Story Remains A Basket Of Time Bombs

Many U.S. corporations raised cash via bond offerings so they could increase dividends and share buyback programs. They will be squeezed by higher interest rates and wider spreads versus Treasuries in 2019 as this debt must be rolled over.

Many countries raised cash via dollar-denominated debt, and significantly weaker local currencies increase the number of dollars needed to service this debt.

In the USA, the housing market has stalled, and our banking system faces new waves of loan defaults on mortgages, commercial real estate loans, construction & development loans, student loans, car loans and credit card debt.

Main Street USA and small businesses are being squeezed by the money center and regional banks that have tightened lending standards beyond the .25% bump for each rate hike by the FOMC.

Corporations operating globally receive sales in local currencies, and this will drag earnings in upcoming quarters as overseas revenues convert to fewer dollars.

Today I will show daily charts and discuss my value levels, pivots and risky levels.

The 20+ Year Treasury Bond ETF (NYSEARCA: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.

Daily Chart For TLT

Courtesy of MetaStock Xenith

The Treasury Bond ETF ($114.99 on Oct. 26) is down 9.4% year to date, and its weekly chart is negative but oversold with the ETF below its the five-week modified moving average of $116.20 and below its 200-week simple moving average or "reversion to the mean" at $124.86. It’s been below this average since the week of Jan. 19. The 12x3x3 weekly slow stochastic reading ended last week at 17.81, up from 17.60 on Oct. 19.

The daily chart shows that TLT has been below a “death cross” since Feb. 7 when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices lie ahead. The strategy under this bearish pattern is the sell strength to the 200-day simple moving average, which was doable between June 20 and Aug. 11 as the average slipped from $122.22 to $121.30.

Investor Strategy: Buy weakness to my weekly and quarterly value levels of $110.59 and $105.77, respectively, and reduce holdings on strength to my monthly pivot at $116.81.

The Utilities Select Sector SPDR Fund (NYSEARCA:XLU)

Daily Chart For XLU

Courtesy of MetaStock Xenith

The Utility Stock ETF ($53.37 on Oct. 26) is up 1.3% year to date and its weekly chart ended last week negative. XLU is below its five-week modified moving average of $53.47 and is above its 200-week simple moving average of $49.06. This “reversion to the mean” was last tested during the week of Feb. 9 when the average was $47.56. The 12x3x3 weekly slow stochastic reading ended last week 63.34, down from 64.06 on Oct. 19.

The daily chart shows that the utilities ETF has been above a “golden cross” since Aug. 14 when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices lie ahead. The 200-day SMA held at $51.30 on Sept. 26. Investors should continue to hold a core long position given its 3.36% dividend yield.

Investor Strategy: Investors should buy weakness to the 200-week simple moving average at $49.06. The ETF is above my monthly pivot of $52.44 and below my semiannual, quarterly and annual pivots of $53.86, $54.42 and $54.46, respectively. The Dec. 1, 2017, high is at $56.90.

SPDR Bloomberg Barclays High Yield Bond ETF (NYSEARCA:JNK)

Daily Chart For JNK

Courtesy of MetaStock Xenith

The Junk Bond ETF ($35.09 on Oct. 26) is down 4.4% year to date with a negative weekly chart. The ETF is below its five-week modified moving average of $35.58 and is below its 200-week simple moving average of $36.48. JNK has been below this “reversion to the mean” since the week of Nov. 14, 2014 when the average was $40.08. The 12x3x3 weekly slow stochastic reading slipped to 39.11 last week, down from 50.09 on Oct. 19.

The daily chart for the Junk bond ETF shows that the ETF was below a “death cross” as 2018 began, meaning that the strategy was to sell strength to the 200-day simple moving average which was doable on Sept. 27 when the average was tested at $36.02.

Investor Strategy: Buy weakness to my semiannual value level of $31.15 and reduce holdings on strength to my quarterly, annual and quarterly risky levels of $36.18, $37.15 and $37.23, respectively. My monthly pivot at $35.09 was tested at the Oct. 26 low.

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.