Buy The Treasury Bond ETF, Book Gains On Utilities, Avoid Junk Bonds

The yield on the 30-year Treasury bond remains well below its 200-day simple moving average at 3.091% and its 50-day SMA at $2.93%. Semiannual and monthly value levels are 3.052% and 3.123%, respectively, with a quarterly risky level at 2.813% which was tested on May 16.

The utilities stock ETF has a dividend yield below 3% at 2.93% which is not cheap enough for a “flight to safety”. The 2019 “Dogs of the Dow” remain an alternative.

Our nation’s banks are getting worried about corporate debt so avoid junk bonds.

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.

Courtesy of Refinitiv XENITH

The Treasury bond ETF ($125.99 on May 17) is up 3.7% so far in 2019 and set its 2019 high of $126.69 on March 28. This ETF is up 12.6% from its 2018 low of $111.90 set on Nov. 2. TLT has a positive weekly chart, with the ETF above its five-week modified moving average of $123.99 and above its 200-week simple moving average or “reversion to the mean” at $124.14. The 12x3x3 weekly slow stochastic reading rose to 68.64 last week, up from 64.10 on May 10.

Investor Strategy: Buy weakness to its semiannual and monthly value levels at $121.37 and $119.77, respectively, and reduce holdings on strength to its quarterly risky level is $126.41.

The Utilities Select Sector SPDR ETF (NYSEARCA:XLU)

Courtesy of Refinitiv XENITH

The utility stock ETF ($58.78 on May 17) is up 11.1% so far in 2019 and is 15.7% 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 $57.96 and well above its 200-week simple moving average or “reversion to the mean” at $50.70. The 12x3x3 weekly slow stochastic slipped to 79.73 last week, down from 80.09 on May 10 just below the overbought threshold of 80.00. A weekly close below $57.95 with the stochastic reading below 80.00 would be a technical sell signal.

Investor Strategy: Investors should buy weakness to its semiannual pivot at $52.38 and to the 200-week SMA at $50.62 and reduce holdings on strength to its annual risky level at $58.98 which was doable on Friday, May 17. I show monthly and quarterly pivots in-between at $58.13 and $55.82, respectively.

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

Courtesy of Refinitiv XENITH

The junk bond ETF ($107.40 on May 17) is up 6.6% so far in 2019 and is 8.7% above its Dec. 26 low of $98.76. JNK has a neutral but overbought weekly chart, with the ETF below its five-week modified moving average at $107.72 and below its 200-week simple moving average or “reversion to the mean” at $107.76. The 12x3x3 weekly slow stochastic reading slipped to 82.15 last week, down from 90.40 on May 10 as its “inflating parabolic bubble” is popping.

Investor Strategy: Buy weakness to its quarterly, monthly, annual and semiannual value levels of $105.31, $104.72, $102.60 and $98.21 35, respectively, and reduce holdings because the parabolic bubble is popping.

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 and April. 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.

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.