Fairlead Strategies Idea Generator

iShares Investment Grade Corporate Bond ETF (LQD)

Bonds have been performing well relative to equities lately despite having seen a bear market move of their own. With Treasury yields set to consolidate after a failed breakout, we think bonds will continue to hold up well and would consider the iShares Investment Grade Corporation Bond ETF (LQD):

• Fixed income ETFs like LQD tend to outperform stocks in down markets, in part because they are perceived as safer investments. Relative to the S&P 500 Index (SPX), LQD cleared its 200-day (~40-week) moving average recently, suggesting that a meaningful shift has occurred favoring LQD.

• LQD has seen a relentless decline in absolute terms this year, such that it nearly reached the March 2020 lows last week. However, the downtrend has seen a loss of downside momentum and there are now signs of downside exhaustion per the DeMARK Indicators®, denoted by the red “13” on the chart below. The last “buy” signal of its kind was fairly timely in October 2018.

• An upside target for a counter-trend move can be gauged by the May high and the daily cloud, which coincide near $116. Two consecutive daily closes below the most recent low, near $107, can be used as a stop-loss level.

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iShares Investment Grade Corporation Bond ETF (LQD, $109.96):

Target: $116

Stop-Loss: $107