Stocks lost steam on Thursday after investor confidence in the markets took a hit as JPMorgan’s earnings missed analyst expectations, sparking a sell-off in the financials sector. The Dow Jones Industrial Average and S&P 500 both finished the day in slight red territory, while the NASDAQ inched a bit higher in anticipation of Google’s earnings results at the end of the day. The internet giant surpassed analyst estimates as profits rose by 29% from last quarter, and shares were up well over 5% in after hours trading. Gold tumbled down to $1,654 an ounce yesterday morning, although the precious metal was able to hold support and work its way higher, settling around $1,670 an ounce for the day.
Wall Street has been in a cheerful mood these past few trading sessions as euro zone worries have seemingly evaporated. Investors will look to end the week on a positive note as U.S. retail sales take center stage later today. The SPDR S&P Retail ETF (XRT) is our fund to watch for the day and analysts are expecting 0.8% growth in retail sales for the month of September, versus last month’s reading which showed no change [see XRT Holdings].
Since topping out at $56.44 a share on 7/7/2011, XRT has tumbled considerably lower, just skimming the $42.50 level. XRT appears to have established support around the $44 level, as this ETF has bounced back from this level three times now over the past two months [see Alternatives To The 20 Most Popular ETFs]. This ETF is now at a critical spot as it has closed right on its 200-day moving average (yellow line) just above $50 a share. XRT is clearly attempting to break above its 200-day moving average, and we would advise investors to wait until the fund establishes support above its moving average for two or more consecutive days before jumping in long [see XRT Charts].
From a longer-term investment perspective, establishing a long position at current levels offers great upside potential. However, XRT is still considered to be in a technical downtrend and we would advise for conservative investors to hold off until the fund is back above the $50 level.
If retail sales come in better-than-expected, investor confidence in the U.S. economy will likely improve, sparking a potential rally on Wall Street [see Contrarian ETF Ideas: Investing In The ETF Dogs Of 2011]. In terms of upside, XRT can possibly soar to $52 a share, at which point we would advise short-term traders to take profits. If history repeats itself however, XRT will fail to conquer the $50 a share level, as it has already done so twice already in the last two months. In terms of downside, this ETF has minor support at $48 a share, with major support coming in at the $44 level as mentioned previously. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Disclosure: No positions at time of writing.