The Treasury Bond And Utilities ETFs Are Trading Around Pivots, While The Junk Bond ETF Rallies

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

The Treasury bond ETF closed Friday above my semiannual pivot at $121.37.

The Utilities sector ETF closed Friday below my quarterly and monthly risky levels at $55.87 and $56.25.

The high yield bond ETF closed Friday above its quarterly pivot at $35.27 and the 200-day SMA at $35.37.

The yield on the 30-year Treasury bond remains below its 200-day simple moving average at 3.127% with my quarterly risky level at 2.863%.

The Federal Reserve is using its balance sheet to adjust monetary policy: My theme is that the FOMC will not raise or lower the funds rate in 2019. My prediction since the Jan. 30 policy meeting is that the FOMC would use its balance sheet to implement monetary policy. This call seems to be gaining credence as the Fed increased its balance sheet during the week ended Feb. 13 by $2 billion to $4.028 trillion, up from $4.026 on Feb. 6. The balance sheet is now down $472 billion from $4.5 trillion where it was at the end of September 2017.

The utilities stock ETF offers a dividend yield of 3.3% which is a reason to hold this “flight to safety” investment as a core holding. The buy level is the “reversion to the mean” at $49.76.

The junk bond ETF continues to rally with stocks, but the upside should be limited to its “reversion to the mean” at $36.12. This ETF has been below its 200-week simple moving average since the week of Nov. 14, 2014.

Here are the daily charts for these ETFs

The iShares 20+ Year Treasury Bond ETF (NYSEARCA:TLT)

The U.S. Treasury 20+ 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 ($121.98 on Feb. 15) is above a “golden cross” that formed on Jan. 29 when the 50-day SMA rose above the 200-day SMA, with these averages now at $120.58 and $118.74. A “golden cross” indicates that higher prices lie ahead. The ETF is trading between its monthly value level for February at $117.46 and its Jan. 3 high of $123.86 with my semiannual pivot at $121.37.

TLT has a positive weekly chart, with the ETF above its five-week modified moving average of $120.65. The ETF remains below its 200-week simple moving average or “reversion to the mean” at $123.93. The 12x3x3 weekly slow stochastic reading ended last week at 75.68, up from 74.05 on Feb. 8.

Investor Strategy: Buy weakness to my monthly value level at $117.46 and reduce holdings on strength to the 200-week SMA at $123.93. My quarterly risky level is $125.62.

The Utilities Select Sector SPDR ETF (NYSEARCA:XLU)

Daily Chart For XLU Courtesy of MetaStock Xenith

The Utility stock ETF ($55.71 on Feb. 15) confirmed a “golden cross” back on Aug. 14 with the 50-day and 200-day SMAs now at $54.20 and $53.00, respectively. My semiannual value level is $52.38 with my quarterly and monthly risky levels at $55.87 and $56.25, respectively. The low end of this range was tested last week.

XLU has a positive weekly chart, with the ETF above its 5-week modified moving average at $54.52 and above its 200-week simple moving average or “reversion to the mean” at $49.76. The 12x3x3 weekly slow stochastic rose to 55.85 last week, up from 48.40 on Feb. 8.

Investor Strategy: Investors should buy weakness to my semiannual pivot at $52.38 and to the 200-week SMA at $49.76 and reduce holdings on strength to my quarterly and monthly risky levels at $55.87 and $56.25, respectively. My annual risky level is $58.98.

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

Daily Chart For JNK Courtesy of MetaStock Xenith

The junk bond ETF ($35.50 on Feb. 15) is above my monthly and annual pivots at $34.39 and $34.20, respectively, and above my quarterly risky level and 200-day simple moving average at $35.27 and $35.36, respectively.

JNK has a positive but overbought weekly chart, with the ETF above its five-week modified moving average at $34.97 but still below its 200-week simple moving average or “reversion to the mean” at $36.12. The 12x3x3 weekly slow stochastic reading rose to 80.03 last week, up from 73.05 on Feb. 8.

Investor Strategy: Buy weakness to my semiannual value level of $32.74 and reduce holdings on strength to the 200-week simple moving average at $36.12.

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.