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Bond ETFs head for a moving average crossover

June 17, 2013

Two US bond ETFs are at 12 month lows and are nearing a moving average crossover. Depending on the instrument and the pair of moving averages, crossovers can happen regularly.

Moving average crossover methods use a cross of the shorter term average above the longer term average as a buy signal but in many markets, choppy ones especially, this can be a losing strategy.

The crossovers I’m interested in are when there has been no crossover for four years, making the next one more meaningful. See my methods page.

iShares iBoxx $ Invest Grade Corp Bond (LQD)

LQD

  • The 30 and 40 week moving average last crossed in July 2009
  • At the October 2012 high, the MACD was below its 2009 and 2010 peaks, there was a bearish divergence
  • A crossover looks likely soon with the price being below the averages

iShares JPMorgan USD Emerging Markets Bond (EMB)

EMB
Likewise, the last cross was in July 2009 and following a MACD divergence, a crossover looks imminent

Crossovers would be long term sell signals although there may be a short term recovery after this. These ETFs are the riskier end of the bond market and EMB includes a foreign exchange element. EMB will fall if foreign currencies fall, all else equal.

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