Treasury Yields And Utilities Stabilized As Junk Bonds Decline

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

The Treasury bond ETF traded as low as $111.90 on Nov. 2 and has been below a “death cross” since Feb. 7.

The Utilities Sector SPDR ETF has been above a “golden cross” since Aug.14 as my annual pivot at $54.46 remains a magnet.

The SPDR High Yield Bond ETF remains below a “death cross” and traded to a new 2018 low of $34.54 on Nov. 16.

Rising bond yields remain a problem for the financial markets, but yields have stabilized as the Federal Reserve has not yet begun to drain this month’s $50 billion from its balance sheet.

Allocation to stocks will continue to focus on dividends and thus the utilities ETF has value as an overweight allocation given its 3.46% dividend yield.

The yield on junk bonds will likely rise faster than treasuries in 2019 as corporate bonds must refinance at higher yields.

Global Non-Financial Corporate Debt totals $68 trillion. Corporations around the world including U.S. corporations raised cash via bond offerings so that they can increase dividends and share buyback programs. As debts mature, they will be squeezed by higher interest rates and wider spreads versus U.S. Treasuries. Continue to avoid junk bonds and beware that downgrades are on the horizon.

Today I will show daily charts and 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 The Bond ETF Courtesy of MetaStock Xenith

The Treasury Bond ETF ($114.70 on Nov. 16) is down 9.6% year to date with the ETF below a “death cross” since Feb. 7 when the 50-day simple moving average fell below the 200-day simple moving average to indicate that lower prices lie ahead. This ETF set its 2018 low of $111.90 on Nov. 2 and is well below my monthly risky level of $118.82. The weekly chart is negative but oversold with the ETF below its the five-week modified moving average of $114.91 and well below its 200-week simple moving average or “reversion to the mean” at $124.60. The 12x3x3 weekly slow stochastic reading ended last week at 14.75 slipping from 14.99 on Nov. 9 well below the oversold threshold of 20.00.

Investor Strategy: Buy weakness to my weekly and quarterly value levels of $110.65 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)

Daily Chart For The Utilities ETF Courtesy of MetaStock Xenith

The Utility Stock ETF ($54.88 on Nov. 16) is up 4.2% year to date and is above a “golden cross” since Aug. 14 when the 50-day SMA rose above the 200-day SMA. This positive indicates that higher prices lie ahead and its 2018 high of $55.49 was set on Oct. 24. Its weekly chart is positive with the ETF above its five-week MMA at $53.94 and is above its 200-week SMA of $49.16 which is also the “reversion to the mean”. The 12x3x3 weekly slow stochastic reading ended last week at 64.70 up from 61.38 on Nov. 9.

Investor Strategy: Investors should buy weakness to the 200-day SMA at $51.66. The ETF is above my semiannual, quarterly and annual pivots at $53.86, $54.42, $54.46, respectively, and below my monthly risky level of $55.68. The Dec. 1, 2017 high is $56.90.

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

Daily Chart For The Junk Bond ETF Courtesy of MetaStock Xenith

The Junk Bond ETF ($34.61 on Nov. 16) is down 5.7% year to date and has been below a “death cross” all year long and the 200-day SMA was last tested at $36.02 on Sept. 27 as an opportunity to reduce holdings. The weekly chart is negative but oversold with the ETF below its five-week MMA of $35.26 and is below its 200-week SMA of $36.42. The 12x3x3 weekly slow stochastic reading slipped to 18.38 last week down from 22.67 on Nov. 9 and falling below the oversold threshold of 20.00.

Investor Strategy: Buy weakness to my semiannual value level of $31.15 and reduce holdings on strength to my quarterly, annual and monthly 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.