Searching for Yield? Trade These ETFs to Play Bonds, Gold, Crude Oil and Euros

NEW YORK (TheStreet) -- Federal Reserve Chair Janet Yellen is worried about stretched valuations in the stock market, while investors are searching for yield. Due to this dilemma, the market dynamics are changing for bonds, gold, crude oil and the dollar.

There's no need to search for yields. Take advantage of short-term markets volatility to trade bonds, gold, oil and the dollar using exchange-traded funds. Let's start with the importance of bond yields. 

The yield on the 30-Year U.S. Treasury bond has risen by 81.7 basis points from its record low of 2.22% set on Jan. 30 to 3.04%, set on May 7. The yield on the 2-Year U.S. Treasury note rose by just 21 basis points over this same period. This is a "bearish steepening" of 60.7 basis points.

A bearish steepening of the yield curve is a warning that the economy is growing at a slower-than-desirable pace, which could slow the pace at which the Fed raises the federal funds rate, and thus the normalization of interest rates. This could be part of Yellen's thought process, as higher bond yields are a drag on equity valuations.

Higher yields hurt corporations wanting to increase debt as the spread above "risk-free" U.S. Treasury yield widens. As yields on corporate bonds widen investors should not be searching for yield. Bond yields will rise and bond prices will fall!

This process will also be a drag on the important -- and economically sensitive -- housing market. Banks will reduce their mortgage lending in an already-sluggish housing recovery.

The dynamics of the yield environment make it important to understand that bonds can be traded just like stocks. The first two graphs will show investors the relationship; when yields are rising, bond prices are falling.

Here's the daily chart for the 30-Year U.S. Treasury bond.


Courtesy of MetaStock Xenith

This graph shows that the yield on the 30-Year bond had been below its 200-day simple moving average since March 13, 2014, when this yield was 3.69%, until recently. Note the rise in yield from 2.22% on Jan. 30 to 3.04% on May 7, and that the 200-day simple moving average of 2.86% held on May 8.

Here is the daily chart for the bond ETF:


Courtesy of MetaStock Xenith

Investors seeking the safety of the U.S. Treasury market have been trading the 20+ Year Treasury Bond ETF (TLT). This exchange-traded fund is a basket of U.S. Treasury bonds with maturities of 20 years to 30 years. The ETF trades like a stock. Notice how the price of the bond ETF rises when yields fall and declines when yields rise.

The bond ETF set its all-time intraday high of $138.50 on Jan. 30, the day of the lowest yield. The ETF had been above its 200-day simple moving average since March 11, 2014, when the average was $106.45. The ETF moved back below its 200-day simple moving average of $123.63 on May 4, three days the bond yield rose above its 200-day.

Investors looking to buy the bond ETF should place a good-till-canceled limit order to purchase the ETF if it drops to $120.33, which is a key level on technical charts until the end of the year.

Investors looking to reduce holdings should place a good-till-canceled limit order to sell the ETF if it rises to $132.13, which is a key level on technical charts until the end of the year.

Here is the daily chart for the gold ETF:


Courtesy of MetaStock Xenith

The SPDR Gold Shares ETF (GLD) which is backed by gold bullion and matches the performance of Comex Gold futures contracts, traded as high as $125.58 on Jan. 22, then as low as $109.77. This trading range is being consolidated. This ETF is below its 50-day and 200-day simple moving averages of $114.14 and $117.42, respectively.

Investors looking to buy the gold ETF should place a good-till-canceled limit order to purchase the ETF if it drops to $106.09, which is a key level on technical charts until the end of May.

Investors looking to book profits should place a good-till-canceled limit order to sell the ETF if it rises to $136.11, which is a key level on technical charts until the end of June.

Here is the daily chart for the commodity ETF:

Courtesy of MetaStock Xenith

Investors trading crude oil like a stock are using the iShares GSCI Commodity-Index Trust Fund (GSG), which is 70% to 75% weighed to energy and crude oil. The commodity ETF set a low of $18.83 on March 18, which turned out to be a key reversal day with a close above the prior day's high. The ETF traded as high as $22.34 on May 6. The commodity index is between its 50-day and 200-day simple moving averages of $20.46 and $24.71, respectively.

Investors looking to buy the commodity ETF should place a good-till-canceled limit order to purchase the ETF if it drops to $20.43, which is a key level on technical charts until the end of this week.

Investors looking to reduce holdings should place a good-till-canceled limit order to sell the ETF if it rises to $23.20, which is a key level on technical charts until the end of June.

A key level on technical charts of $21.67 should act as a magnet until the end of June. This level was crossed last week.

Here is the daily chart for the currency ETF:


Courtesy of MetaStock Xenith

Investors looking to trade the greenback should use the Deutsche Bank USD Index (UUP), which represents the U.S. dollar vs. a basket of currencies; the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The currency ETF traded as high as $26.50 on March 13 and consolidated to as low as $24.69 on May 6. This ETF is between its 200-day and 50-day simple moving averages of $23.87 and $25.66, respectively, well below its 2015 high of $26.50, set on March 13.

Investors looking to buy the currency ETF should place a good-till-canceled limit order to purchase the ETF if it drops to $24.10, which is a key level on technical charts until the end of June.

Investors looking to reduce holdings should place a good-till-canceled limit order to sell the ETF if it rises to $26.75, which is a key level on technical charts until the end of May.

Investors not familiar with technical analysis should begin with the notion that a price chart for an index or stock shows a road map of past price performance, which provides guidance for predicting future share price direction.

In a daily chart, there are two moving averages to follow; the 50-day simple moving average is in blue while the 200-day simple moving average is in green.

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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