Thursday’s ETF Chart To Watch: Dow Jones U.S. Financial Services Index Fund (IYG)

by on October 13, 2011 | ETFs Mentioned:

Stocks climbed higher on Wednesday as uncertainty over the fate of the euro zone appears to have seemingly disappeared from the market this week. Domestic equity indexes extended gains into green territory for the 7th consecutive session yesterday, leading many to believe that the markets may be showing signs of a bottom in the near term. FOMC minutes from the most recent Fed meeting were released yesterday, revealing that policymakers are still concerned about the health of the domestic economic recovery. Gold drifted higher alongside equities, with the precious metal settling near $1,670 an ounce for the day.

Earnings season is underway and financial behemoth, JPMorgan Chase, is slated to report quarterly performance results before the opening bell today. The company is the second largest holding in the iShares Dow Jones U.S. Financial Services Index Fund (IYG), making this our ETF to watch. Analysts are expecting an EPS of 98 cents, a 3% decline from the company’s actual earnings for the same quarter one year ago [see which ETFs offer exposure to any company with the Free Stock Exposure Tool].

Chart Analysis

Since topping out at $62.05 a share on 2/16/2011, IYG has shed 27%, versus the S&P 500 which has shed only 9% in that same time frame. This ETF recently dipped down as low as $37.90 a share on 10/4/2011, although it appears to be establishing support above the $40 level. Short-term traders should look for this fund to close above $45 a share first before getting in long [see more charts of IYG here].

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Investors who believe the financials sector may be due for a big rebound over the long haul are likely tempted to establish positions at current levels. However, we would advise conservative investors to hold off until IYG climbs back above its 200-day moving average (yellow line), since the fund is still considered to be in a technical downtrend [see technicals of IYG here].


IYG will likely see an increase in trading volumes tomorrow as investors digest the first round of performance results from the financials sector. If earnings come in better-than-expected, IYG can rally towards $47.50 a share. On the other hand, if JPMorgan Chase falls short of analyst expectations, selling pressures may develop, in which case IYG can easily tumble down to $42.50 or $40 a share. IYG appears to have bottomed out just below the $40 mark, however, we’re not convinced until shares able to close above the $45 level for two or more consecutive days. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.