The Treasury Bond And Utility Stock ETFs Struggling At Highs, Junk Bonds Perform With Stocks

The yield on the 30-year Treasury bond fell to an all-time intraday low of 1.905% on Aug. 28 and its weekly chart still shows that the decline in yields is overdone. Its monthly support for September is 2.177% with its annual risky level at 1.756%. The weekly chart may soon signal that the decline in yields is over.

The dividend yield for the utilities stock ETF fell to 3.09% last week, down from 3.10%.

I continue to recommend that investors avoid junk bonds. Book profits on strength.

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.

Courtesy of Refinitiv XENITH

The Treasury bond ETF ($145.79 on Sept. 6) is up 20% year to date and set its 2019 high of $148.90 on Aug. 28. This ETF is in bull market territory, up 30.3% 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 $141.04 and well above its 200-week simple moving average or “reversion to the mean” at $125.19. The 12x3x3 weekly slow stochastic reading inched up to 86.56 last week, up from 86.26 on Aug. 30 and moving further above the overbought threshold of 80.00. This reading is approaching the 90.00 threshold which would make it an “inflating parabolic bubble.”

Investor Strategy: Investors have reduced holdings on strength to its annual risky level, now a pivot is at $145.84. Remain patient and buy weakness to its semiannual value level at $135.75. I show a monthly pivot for September at $141.64

The Utilities Select Sector SPDR ETF (NYSEARCA:XLU)

Courtesy of Refinitiv XENITH

The utility stock ETF ($62.81 on Sept. 6) is up 18.7% so far in 2019 and is 23.6% above its Dec. 26 low of $50.81. XLU has a positive but overbought weekly chart with the ETF above its five-week modified moving average at $61.39 and well above its 200-week simple moving average or “reversion to the mean” at $52.08. The 12x3x3 weekly slow stochastic reading slipped to 83.77 last week, down from 83.84 on Aug. 30 and above the overbought threshold of 80.00.

Investor Strategy: Investors reduced holdings on strength to the semiannual pivot at $63.67. Investors should now buy weakness to its annual pivot at $58.98 and reduce holdings on strength to the monthly risky level at $65.13.

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

Courtesy of Refinitiv XENITH

The junk bond ETF ($108.83 on Sept. 6) is up 8% so far in 2019 and is 10.2% above its Dec. 26 low of $98.76. The weekly chart for JNK remains positive with the ETF above its five-week modified moving average at $108.29. The ETF is above its 200-week simple moving average or “reversion to the mean” at $107.59. The 12x3x3 weekly slow stochastic reading rose to 63.15 last week, up from 59.83 on Aug. 30.

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 $115.04.

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 changes at the end of each month, the latest on Aug. 30. 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 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.