Go Ahead, Buy Junk Bonds Right Now and Lose Money

A stronger-than-expected employment report for June has the U.S. Treasury bond yield higher and gold slipping. This is not surprising as expectations for stronger economic data have softened the demand for "flight to safety" investments.

The exchange-traded funds for U.S. Treasury bonds, gold bullion and utility stocks began June with positive weekly charts but are beginning July with negative weekly charts. Investors are now looking to buy these ETFs on weakness. Investors should avoid junk bonds.

The best investment for 30-year U.S. Treasury bonds is the 20+ Year Treasury Bond ETF (TLT) . Gold bullion is best traded using the SPDR Gold Shares ETF (GLD) .

Investors seeking dividends invest in the Utilities Select Sector SPDR Fund (XLU) . Investors interested in junk bonds trade the SPDR Barclay High Yield Bond ETF (JNK) .

Buyers must be careful as junk bonds tend to perform in tandem with stocks, not bonds. Therefore, the junk bond ETF lags the other three "flight to safety" investment choices.

Scorecard for the 'Flight to Safety' ETFs
Scorecard for the 'Flight to Safety' ETFs

The S&P 500 has a gain of 7.6% year to date setting an all-time intraday high of 2,453.83 on June 19. The U.S. Treasury bond ETF is up 3.8% year to date and set its 2017 high of $128.57 on June 26. The gold bullion ETF has a gain of 6.3% year to date and set its 2017 high of $123.31 on June 6. The utilities stocks ETF has a gain of 5.9% year to date and set its all-time high of $54.63 on June 2. The Junk Bond ETF is the laggard up just 1.2% year to date.

The 200-week simple moving average is the "reversion to the mean" for each exchange-traded fund. The "reversion to the mean" is an investment theory that the price of an ETF, will eventually return to a longer-term simple moving average.

A logical choice that's easy to track is the 200-week simple moving average. A ticker trading above its 200-week simple moving average will eventually decline back to it on weakness. Similarly, a ticker trading below its 200-week simple moving average will eventually rebound to it on strength.

The 20+ Year Treasury Bond ETF (TLT)
The 20+ Year Treasury Bond ETF (TLT)
Courtesy of MetaStock Xenith

The yield on the 30-year U.S. Treasury bond traded as high as 3.215% on March 14, and then traded as low as 2.682% on June 26. My monthly and annual value levels are 3.343% and 4.137%, respectively, with my semiannual and quarterly risky levels of 2.539% and 2.398%, respectively.

The U.S. Treasury 30-Year Bond trades like a stock using the 20+ Year Treasury Bond ETF, which 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.

The weekly chart for the Treasury Bond ETF will shift to negative this week, given a close today below its five-week modified moving average of $124.47. The bond ETF is above its 200-week simple moving average or "reversion to the mean" of $121.39, which is a key level to hold on weakness. The 12x3x3 weekly slow stochastic reading is projected to end this week at 79.19, falling below the overbought threshold of 80.00. 

Buy weakness to my monthly and annual value levels of $112.95 and $105.77, respectively. Sell strength to my semiannual and quarterly risky levels of $125.69 and $136.14, respectively.

The Gold Bullion ETF (GLD)
The Gold Bullion ETF (GLD)
Courtesy of MetaStock Xenith

Comex gold set its post-election high of $1,338.3 on Nov. 9 then traded to its post-election low as $1,124.3 on Dec. 15. The 2017 high of $1,298.8 was set on June 6. My semiannual and monthly value levels are $1,192.5 and 1,178.9 with quarterly and annual risky levels of $1,258.49 and $1,674.1, respectively.

Investors can trade gold bullion like a stock using the SPDR Gold Shares ETF.

The weekly chart for the Gold Bullion ETF is positive, with the ETF above its five-week modified moving average of $118.76 and below its 200-week simple moving average of $118.06, which is the "reversion to the mean," frequently tested since the week of June 24, 2016. The 12x3x3 weekly slow stochastic is projected to decline to 47.62 this week down from 55.86 on June 30.

Buy weakness to my monthly and semiannual value levels of $111.96 and $83.14, respectively. Sell strength to my quarterly and annual risky levels of $119.28 and $160.24, respectively.

The Utilities ETF (XLU)
The Utilities ETF (XLU)
Courtesy of MetaStock Xenith

Dow utilities set its post-election low of 616.19 on Nov. 14 and set its all-time intraday high of 738.82 on June 16. My annual value level is 679.56 with a monthly pivot of 703.97 and semiannual and quarterly risky levels of 759.14 and 778.25, respectively.

Investors seeking the safety of dividends can trade the utilities ETF, which is a basket of 28 utility stocks.

The weekly chart for the Utilities ETF (XLU) is negative, with the ETF below its five-week modified moving average of $52.52. The ETF is above its 200-week simple moving average, or the "reversion to the mean" of $45.29. The 12x3x3 weekly slow stochastic reading is projected to decline to 60.67 this week down from 74.62 on June 30.

Buy weakness to my annual value level of $50.72. My semiannual and monthly pivots are $31.98 and $52.13, respectively. Sell strength to my quarterly risky level of $56.64.

The Junk Bond ETF (JNK)
The Junk Bond ETF (JNK)
Courtesy of MetaStock Xenith

The High Yield Bond ETF is for investors betting that junk bond yields will tighten against U.S. Treasuries. Remember that the performance of junk bonds correlates more to the stock market, not to the bond market.

The weekly chart for the Junk Bond ETF (JNK) is negative, with the ETF below its five-week modified moving average of $37.06. The ETF has been below its 200-week simple moving average since the week of Nov. 14, 2014, with the average now at $37.94. The 12x3x3 weekly slow stochastic reading is projected to decline to 65.50 this week down from 73.52 on June 30.

Buy weakness to my semiannual and quarterly value levels of $34.68 and $33.57, respectively. Sell strength to monthly and annual risky levels of $37.64 and $43.98.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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