The Treasury Bond, Utilities And Junk Bond ETFs Are In Trading Ranges

Dec. 08, 2019 5:08 PM ETJNK, TLT, XLU1 Comment3 Likes
Richard Suttmeier profile picture
Richard Suttmeier
3.7K Followers

Summary

  • The Treasury bond ETF trades at its semiannual pivot at $135.75 with its annual and monthly risky levels at $145.84 and $147.70.
  • The utilities sector ETF trades between its quarterly and annual value levels at $59.84 and $58.98 and its semiannual and monthly risky levels are at $63.67 and $64.90.
  • The high yield bond ETF remains on top of its “reversion to the mean” at $108.02 with its monthly risky level at $108.74.

The yield on the 30-year Treasury bond has weekly and semiannual value levels at 2.347% and 2.431% with monthly and annual risky levels at 1.904% and 1.756%.

The dividend yield for the utilities stock ETF is just 3.11% which is not cheap enough as Treasury yields rise.

Continue to avoid junk bonds as their yield spread versus U.S. Treasury yields should continue to widen longer-term.

Here are weekly 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.

Weekly Chart For The Treasury Bond ETFCourtesy of Refinitiv XENITH

The Treasury bond ETF ($138.35 on Dec. 6) is up 13.9% year to date and set its 2019 high of $148.90 on Aug. 28 and is 7.1% below the high. This ETF is in bull market territory up 23.6% from its 2018 low of $111.90 set on Nov. 2, 2018. TLT has a neutral weekly chart with the ETF below its five-week modified moving average at $139.30 and well above its 200-week simple moving average or “reversion to the mean” at $126.27. The 12x3x3 weekly slow stochastic reading rose to 34.77 last week, up from 31.56 on Nov. 29.

Investor Strategy: Investors should buy weakness to its semiannual and quarterly value levels at $135.75 and $131.83, respectively, and reduce holdings on strength to its annual and monthly risky levels at $145.84 and $147.70.

The Utilities Select Sector SPDR ETF (NYSEARCA:XLU)

Weeikly Chart For The Utilities ETFCourtesy of Refinitiv XENITH

The utility stock ETF ($63.21 on Dec. 6) is up 19.4% so far in 2019 and is 24.4% 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 $63.14 and well above its 200-week simple moving average or “reversion to the mean” at $53.38. The 12x3x3 weekly slow stochastic reading fell to 49.74 last week, down from 51.23 on Nov. 29.

Investor Strategy: Investors should buy weakness to its quarterly and annual value levels at $59.84 and $58.98, respectively, and reduce holdings on strength to semiannual and monthly risky levels at $63.67 and $64.90.

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

Weekly Chart For Junk Bonds ETFCourtesy of Refinitiv XENITH

The junk bond ETF ($108.26 on Dec. 6) is up 7.4% so far in 2019 and is 9.6% above its Dec. 26 low of $98.76. The weekly chart for JNK is neutral with the ETF below its five-week modified moving average at $108.27. The ETF is on its 200-week simple moving average or “reversion to the mean” at $108.02. The 12x3x3 weekly slow stochastic reading slipped to 56.73 last week, down from 57.92 on Nov. 29.

Investor Strategy: Buy weakness to its quarterly, annual and semiannual value levels at $103.02, $102.60 and $99.15, respectively. Reduce holdings on strength to its monthly risky level at $108.74.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.

The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.

The quarterly level changes after the end of each quarter so the close on Sept. 30 established the level for the fourth quarter.

The close on Nov. 29 established the monthly level for December.

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.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an “inflating parabolic bubble” as a bubble always pops. I also call a reading below 10.00 as being “too cheap to ignore.”

This article was written by

Richard Suttmeier profile picture
3.7K Followers
I am the Founder & CEO at Global Market Consultants, Ltd. I consider myself as a Financial Engineer with an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. In 1972 I began my career in the financial services industry trading U.S. Treasury securities in the primary dealer community. I became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gave me the insights to be an expert on monetary policy, which I feature in my newsletters, and market commentary. I formed Global Market Consultants Ltd at the end of 1988 and expanded on my analysis to include proprietary analytics. While operating Global Market Consultants I was the U.S. Treasury Strategist at Smith Barney 1991 through 1995, was Chief Financial Strategist at William R. Hough in St. Petersburg, Florida 1997 through 1999, and was Chief Market Strategist at Joseph Stevens 1999 into 2008. I began covering U.S. equities in 1997 and began to use ValuEngine as my stock screening tool in 2002 before joining them as Chief Market Strategist between September 2008 and November 2014. I was the Chief Market Strategist at Niagara International Capital Limited between December 2009 and December 2014. In 2005 through 2007 I wrote columns on RealMoney.com and authored TheStreet.com Technology Report. My unique coverage called for the housing bubble to pop in 2005 and for regional banks to collapse in 2006 and early-2007. This is when my proprietary analytics became known as value levels at which to buy on weakness and risky levels at which to sell on strength. I became an Expert Contributor for TheStreet.com in April 2012 and currently write one or two stories a day covering subjects such as: The housing market, community and regional banks, momentum stocks, earnings profiles both before companies report quarterly results and provide scorecards after reporting results. Many of my stories we include moving averages, momentum readings, analysts’ earnings estimates, and value levels and risky levels. Over the years I made frequent appearances on financial TV beginning in 1993 on CNBC covering the U.S. Treasury auctions and as a substitute for John Murphy on his segment called ‘Tech Talk’. I also occasionally appeared on CNN and Bloomberg. On almost every holiday I appeared for an hour covering stocks on a call-in / email-the-expert ‘Talking Stocks’ show on CNNfn. In 2002 I had my own show on Yahoo Finance TV called, ‘Traders’ Club with Richard Suttmeier’. When Fox Business began in late-2007 I was a frequent guest on ‘Money for Breakfast’. I also made appearances on Reuters TV, Yahoo Finance Breakout and BNN in Toronto. In recent years I shifted my focus to making presentations to various investor groups such as: MBA students at the University of Florida and South Florida, The American Association of Individual Investors, Wells Fargo Advisors, The Executive Form at the National Arts Club in NYC, Investors Roundtable of Wilmington NC, The Market Technicians Association, The Information Management Network when they cover Florida Banks in Ft Lauderdale, and the University of Tampa Investment Club. I was president of the Society for the Investigation of Recurring Events in NYC from 2000 into 2009. My background began on Long Island, New York. I graduated from Bay Shore High School in 1962, and was a member of the Honor Society, Golf Team, Math Team and Band. I graduated from Georgia Tech in Atlanta with a Bachelor of Industrial Engineering Degree in 1966, and was a member of Chi Phi Fraternity, the freshmen Golf Team, and was the captain of the Bowling team. I won the South East Regional Bowling Tournament in 1964 and won the National Intercollegiate Bowling Championship in the Doubles Event that same year. I graduated from Brooklyn Poly in 1970 with a Master of Science in Operations Research, Systems Analysis. My first job out of Georgia Tech was with Grumman Aerospace on Long Island 1966 through 1970 with project assignments on the Lunar Module and F-14 Tomcat Fighter Jet contract proposal. I was with Bank of New York in 1971, as the Senior Systems Analyst for computer applications for the Bank’s International Division. When I shifted my to Wall Street In 1972 I became a U.S. Government securities trader at Briggs Schaedle, a primary dealer where my father was Vice Chairman and my brother was Sales Manager. In 1977 I joined Loab Rhodes as a U.S. Treasury trader. Then my career advanced as noted above. I have been married to Linda since June 1969 and we are the parents of Stephen and Jason Suttmeier. Stephen has been married to Jennifer since 2004 and we have a granddaughter Emily and a grandson Robert. We have been living in Land O’ Lakes, Florida with Jason and his partner James since June 2009.
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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.

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