Seeking Alpha

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

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Includes: JNK, TLT, XLU
by: Richard Suttmeier
Richard Suttmeier
Research analyst, banks, homebuilders, chartest
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.”

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.