'Flight To Safety' Investments Appear Stretched Given Low Yields And Wider Junk Bond Spreads

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

The Treasury bond ETF has been consolidating since setting its 52-week high of $132.58 on June 3.

The utilities sector ETF set its all-time intraday high of $61.19 on June 7 and its dividend yield is too low.

The high yield bond ETF has rebounded with stocks but consider strength as a selling opportunity.

The yield on the 30-year Treasury bond declined to as low as 2.522% on June 3 and is consolidating this decline. The cycle low yield was 2.089% set during the week of July 15, 2016.

The dividend yield for the utilities stock ETF is down to 2.83%, not cheap enough for a “flight to safety”.

TLT outperforms JNK with year-to-date gains of 8.2% versus 7%, respectively.

Here are daily charts for these ETFs

The iShares 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 Refinitiv XENITH

The Treasury bond ETF ($131.46 on June 14) is up 8.2% year to date and set its 2019 high of $132.68 on June 3. This ETF is up 17.5% from its 2018 low of $111.90 set on Nov. 2. TLT has a positive but overbought weekly chart with the ETF above its five-week modified moving average of $128.12 and above its 200-week simple moving average or “reversion to the mean” at $124.29. The 12x3x3 weekly slow stochastic reading rose to 89.01 last week, up from 86.60 on June 7. A reading above 90.00 would make TLT an “inflating parabolic bubble.”

Investor Strategy: Buy weakness to its monthly, quarterly and semiannual value levels at $128.54, $126.41 and $121.37, respectively, and reduce holdings on strength to its annual risky level at $145.84.

The Utilities Select Sector SPDR ETF (NYSEARCA:XLU)

Daily Chart For XLU Courtesy of Refinitiv XENITH

The utility stock ETF ($60.81 on June 14) is up 14.9% so far in 2019 and is 19.7% above its Dec. 26 low of $50.81. XLU has a neutral weekly chart with the ETF above its 5-week modified moving average at $59.09 and well above its 200-week simple moving average or “reversion to the mean” at $51.01. The 12x3x3 weekly slow stochastic reading slipped to 73.50 last week, down from 75.13 on June 7.

Investor Strategy: Investors should buy weakness to its quarterly and semiannual pivots at $55.82 and $52.38. Annual and monthly pivots are $58.98 and $60.09, respectively.

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

Daily Chart For JNK Courtesy of Refinitiv XENITH

The junk bond ETF ($107.79 on June 14) is up 7% so far in 2019 and is 9.1% above its Dec. 26 low of $98.76. JNK has a neutral weekly chart with the ETF above its five-week modified moving average at $107.45 and just above its 200-week simple moving average or “reversion to the mean” at $107.65. The 12x3x3 weekly slow stochastic reading slipped to 48.09 last week, down from 50.43 on June 7.

Investor Strategy: Buy weakness to its quarterly, monthly, annual and semiannual value levels of $105.31, $103.53, $102.60 and $98.21, respectively.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March, April and May. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

The close on June 28 is the second most important for 2019. This close is an input to my proprietary analytics and will generate new weekly, monthly, quarterly and semiannual levels.

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.