Thursday’s ETF Chart To Watch: iShares Barclays TIPS Bond Fund (TIP)

by on August 18, 2011 | ETFs Mentioned:

Wednesday was yet another range-bound day on Wall Street. Stocks opened higher, but proceeded to sell-0ff before noon, ending up basically where they started the week. Continuing uncertainty and a lack of key economic data releases makes investing in the current environment that much more difficult. The technology sector came into focus on Wednesday as it fell into red territory after industry giant Dell missed earnings estimates and cut its sales forecast going forward. Gold inched a bit higher, closing right above $1,790 an ounce. Crude oil on the other hand surged to $89 a barrel in the morning, then proceeded to sell-off and settle around the $87.50 level towards the end of the day.

This week has been very sparse with economic data releases and tomorrow morning investors will have something to keep an eye on as U.S. Consumer Price Index is slated to come out. Analysts are expecting inflation to come in at around 3.3%, versus last months reading of 3.6%. The iShares Barclays TIPS Bond Fund (TIP) may see an increase in trading activity depending on how investors react to the latest piece of inflation data, considering the Fed’s recent announcement to hold rates steady until mid-2013 [see Inflation ETF Special: 25 ETF Ideas To Fight Rising Prices].

Chart Analysis

TIP has been on a tear since 7/28/2011 after managing to break out past resistance at the $112 level, which is where the fund previously topped out during November of 2010 [see TIP: Silver Bullet Or Steel Trap?]. This ETF recently peaked at $118.59 a share on 8/10/2011, just a day after the S&P 500 sank to its most recent low. Notice the very strong trading volume during TIP’s most recent surge; this is a big clue that many investors are anticipating even more upside since they were clearly buying in as the fund was soaring to new highs [see TIP Charts].

 

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TIP appears to have established possible support at $116 a share since retreating back from its all-time high. Fears about inflation and a generally weak U.S. dollar will likely continue to pave the way higher for TIP, unless there is a serious rebound amongst equities over the next few weeks and investors flock back to more lucrative corners in the market [see Inflation-Proofing Q&A].

Outlook

Investors looking to enter at current levels should be careful to manage their risk and consider exiting their position if shares decline below $115 or $113, depending on individual risk-tolerance. In terms of downside, if TIP closes below $114 for two or more consecutive days it’s likely that further downside will follow, in which case investors for TIP to establish clear support before jumping back in [see TIP Fundamentals]. Assuming that investor uncertainty remains high over the next few days, it’s very probable that TIP will hit at least $118 a share again. 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.