This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bonds Back in Favor?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie

NEW YORK ( ETF Digest) -- For two years, yield-hungry investors have chased yield across the bond market. Rising interest rates and a seemingly "easy money" equities market caused bonds to lose favor at the beginning of March.

So far this week, various market miracle "saves" of headlines and Fed speeches haven't been able to sustain the rising upward momentum investors have become accustomed to through the first quarter of this year. Friday will mark the end of the quarter and fund managers with stellar reports (and fees) are unlikely to leave profits on the table. They'll need somewhere to park money waiting for the next end-of-quarter run up or miracle such as QE. Corporate bonds with a 4.26% dividend would be a logical holding tank.

iShares iBoxx Invest Grade Corp Bond (LQD) offers one of the best yields available for investment grade corporate bonds.

The first statistic I'd like to point out is in the relative volume. While most equities have been trading at two-thirds or less relative volume, LQD is trading above average volume. Volume is all about conviction and from the upward performance this past week, this indicates buying volume.

A 54-cent average true range on a $166 ETF puts the volatility into a sleepy 0.43% monthly. Granted, you won't wake up rich one morning to discover this position has gone up 14% overnight, but you also aren't likely to see heart stopping drops either.

The top ten holdings of LQD only comprise 5.58% of its total composition. In a bond fund that you want for its stability, holdings spread evenly across its composition is a positive factor. This creates low volatility due to the fact that one or two companies or industries are unlikely to move this ETF unexpectedly.

The current technicals of LQD add to its desirability.

On a low volatility position such as LQD, the slower moving indicators such as the MACD and Directional +/- at the bottom of the chart offer us excellent signals.

The MACD Is nearly a perfect set up. The MACD line is in a rising crossover of the signal line and nearing the median line. The histogram has been rising and just entered positive territory. The +/- Directional indicator at the bottom of the chart shows the bears are in retreat and bulls have taken the field in a bullish crossover.

At the top of the chart both the Relative Strength Index and Money Flow Indicators are rising and have crossed the mid-line. Not only does this give us a good directional signal, but also shows follow through on the directional change. At 55 on the MFI and 56 on the RSI, offers significant room to move before have to be concerned with being overbought.

There are some words of caution with LQD, however. A strong upper trend line has been developed. It is unlikely to reach this resistance within the next couple months, but you'll need to keep an eye on it for profit-taking at that level. Also, even though LQD holds corporate bonds, by its nature of an ETF traded intraday, it is still an equity. And as we saw, when bonds lose favor or fund managers need window dressing at the end of the quarter, we can see significant selling.

Rising interest rates cause bond funds to lose favor. We are currently seeing the 10-year T-bill coming off its recent highs and the Fed indicates "accommodating" policies (low interest rates) well into next year. 

An easy way to keep an eye on the fundamentals of this ETF is a glance at the directional movement of the 10-year T-bill.

LQD is giving us a buy signal as a position of caution in an uneasy market.

Disclosure: At the time of writing, I have no position in LQD.

Follow my intraday market commentary and various other observances on 
Facebook and  Twitter .
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TSLA $147.00 -0.67%
YHOO $26.82 -0.85%
AAPL $95.01 0.00%
FB $99.51 -0.24%
GOOG $677.65 -0.75%


Chart of I:DJI
DOW 16,014.38 -12.67 -0.08%
S&P 500 1,852.21 -1.23 -0.07%
NASDAQ 4,268.7630 -14.99 -0.35%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs