Between Oct. 25 and Oct. 31, the Federal Reserve drained $33 billion from its balance as the yield on the 30-Year bond rose to a new 2018 high of 3.467% on Friday.
As yields rise, the utilities ETF becomes less attractive but remains a safe option unless you want to consider the “Dogs of the Dow”. There are four stocks in the Dogs list with dividend yields above 4.00% versus the 3.41% for the ETF.
The yield on junk bonds should soon rise faster than treasuries given global debt issues. 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 has this debt must be rolled-over.
Today I will show weekly 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.
The Treasury Bond ETF ($112.00 on Nov. 2) is down 11.7% year to date and its weekly chart is negative but oversold with the ETF below its the five-week modified moving average of $115.36 and below its 200-week simple moving average or “reversion to the mean” at $124.78. The 12x3x3 weekly slow stochastic reading ended last week at 15.93 down from 17.81 on Oct. 26.
Investor Strategy: Buy weakness to my weekly and quarterly value levels of $109.58 and $105.77, respectively, and reduce holdings on strength to my monthly risky level at $118.82.
The Utilities Select Sector SPDR Fund (NYSEARCA:XLU)
The Utility Stock ETF ($53.15 on Nov. 2) is up 0.9% year to date and its weekly chart ended last week negative. XLU is below its five-week modified moving average of $53.41 and is above its 200-week simple moving average of $49.09. 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 62.48, down from 63.34 on Oct. 26.
Investor Strategy: Investors should buy weakness to the 200-week simple moving average at $49.09. The ETF is below my semiannual, quarterly, annual and monthly pivots of $53.86, $54.42, $54.46 and $55.68, respectively. The Dec. 1, 2017 high is at $56.90.
SPDR Bloomberg Barclay’s High Yield Bond ETF (NYSEARCA:JNK)
The Junk Bond ETF ($35.14 on Nov. 2) is down 4.3% year to date with a negative weekly chart. The ETF is below its five-week modified moving average of $35.49 and is below its 200-week simple moving average of $36.46. JNK has been below this “reversion to the mean” since the week of Nov. 14, 2014 when the average of $40.08. The 12x3x3 weekly slow stochastic reading slipped to 29.55 this week down from 39.11 on Oct. 26.
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 for November is $35.15.
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.