Fed Policy And China Trade War Spark Buying Of Treasury Bonds

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

The Treasury Bond ETF ended last week between its semiannual pivot at $135.75 and its monthly risky level at $138.89.

The Utilities Sector ETF is above its monthly pivot at $59.64 with its semiannual risky level at $63.67.

The High Yield Bond ETF has been downgraded on stock market weakness.

The yield on the 30-Year Treasury Bond yield fell to 2.368% last week as the Fed cut the federal funds rate and as the trade war with China intensified. The cycle low yield of 2.089% was set in July 2016. My quarterly value level is 2.873% with a semiannual pivot at 2.431% and monthly risky level at 2.256%.

Investors returned to the Utilities ETF for its 3.23% dividend yield.

I continue to recommend that investors avoid junk bonds.

Here are weekly charts for these ETFs

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.

Weekly Chart For TLT Courtesy of Refinitiv XENITH

The Treasury Bond ETF ($136.51 on Aug.2) is up 12.3% year to date and set its 2019 high of $136.51 on Aug. 2. This ETF is up 22% 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 $131.84 and well above its 200-week simple moving average or “reversion to the mean” at $124.62. The 12x3x3 weekly slow stochastic reading ended last week at 80.52, up from 79.10 on July 26.

Investor Strategy: Buy weakness to its quarterly value level at $125.12 and reduce holdings on strength to its monthly and annual risky levels at $138.89 and $145.84, respectively. Its semiannual pivot is $135.75.

The Utilities Select Sector SPDR Fund (NYSEARCA:XLU)

Weekly Chart Foe Utility Stocks ETF Courtesy of Refinitiv XENITH

The Utility Stock ETF ($60.15 on Aug. 2) is up 13.7% so far in 2019 and is 18.4% above its Dec. 26 low of $50.81. XLU has a neutral weekly chart with the ETF above its five-week modified moving average at $60.03 and well above its 200-week simple moving average or “reversion to the mean” at $51.63. The 12x3x3 weekly slow stochastic reading slipped to 76.72 last week, down from 79.16 on July 26.

Investor Strategy: Investors should buy weakness to its quarterly value level is $57.20 and its 200-week simple moving average at $51.63. Reduce holdings on strength to the semiannual risky level at $63.67. Annual and monthly pivots are $58.98 and $59.64, respectively.

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

Weekly Chart For Junk Bond ETF Courtesy of Refinitiv XENITH

The Junk Bond ETF ($107.89 on Aug. 2) is up 7.1% so far in 2019 and is 9.2% above its Dec. 26 low of $98.76. The weekly chart for JNK is negative with the ETF below its five-week modified moving average at $108.24. The ETF is just above its 200-week simple moving average or “reversion to the mean” at $107.61. The 12x3x3 weekly slow stochastic reading slipped to 70.48 last week, down from 71.93 on July 26.

Investor Strategy: Buy weakness to its annual and semiannual value levels at $102.60 and $99.15, respectively. Reduce holdings on strength to its monthly risky level at $109.78. Its quarterly pivot is $104.14.

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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on July 31. The quarterly level was changed at the end of June. 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 their time horizon expires.

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.