3 Bond ETFs for Active Investors

With the exception of the Utilities Select Sector SPDRS ETF (NYSE: XLU), there are no more oversold ETFs trading above their 200-day moving averages than the bond funds.

Whether you are looking at corporate bonds by way of the iShares iBoxx Investop Corporate Bond Fund ETF (NYSE: LQD), inflation-protected bonds through the iShares Barclays TIPS Bond Fund ETF (NYSE: TIP) or old-fashioned long-term government bonds in an ETF like the iShares Barclays 20+ Year Treasury Bond Fund ETF (NYSE: TLT), the story is the same: buying in riskier assets like stocks (and even within that group, sectors like technology and the financials) means selling in “risk-free” assets like bonds.

Consider the iShares Barclays 20+ Year Treasury Bond Fund ETF. This fund has been trading in a very wide trading range since late September, a range that has allowed traders to take advantage of oversold conditions near its bottom and overbought conditions near its top. Ahead of trading on Friday, the TLT has finished lower for two days in a row, and has a short-term positive edge of more than 1%.

The edges in some of the other major, oversold bond ETFs are not as sizable as the one in TLT. But should traders and investors continue to sell bonds and buy stocks over the next few days, the likelihood of these other bond funds developing significant short-term positive hedges will grow.

For example, although also pulling back for a second day in a row and newly oversold, the iShares iBoxx Investop Corporation Bond Fund has just over half the short-term edge as TLT. The same is true for the inflation-protected TIPS, developing a short-term positive edge of just over half a percent. Of the two, TIP is already in technically oversold territory while LQD will require at least an additional session of lower prices before trading at levels where buyers historically have been lured off the sidelines.

If what both utilities and bonds have in common is their ability to generate income for their investors, then this might be a good time to mention the pullback in the PowerShares DB U.S. Dollar Index Bullish Fund ETF (NYSE: UUP). Shares of UUP have pulled back for three days in a row and are oversold above their 200-day moving average for the second time this month.

The last time UUP pulled back for three days in a row, early in January, the fund bounced back sharply, gaining more than 2% three days later and finishing at new, 52-week highs.

Be sure to read our latest column from 7 Stocks You Need to Know: Volatility and Visa’s New High.

David Penn is Editor in Chief of TradingMarkets.com.