Uncertainty at home sparked a rampant sell-off across virtually every corner of the equity market as investor worries surrounding the domestic debt drama escalated. The supercommittee reportedly failed to reach an agreement, which inevitably sent many running for the hills as ongoing Euro zone deficit woes only added to the cloud of uncertainty looming over both sides of the Atlantic ocean [see ETF Insider: Will The Supercommittee Surprise?]. Oil was fairly resilient, managing to hold its ground and slip lower by just a few points, ending the day near $97.50 a barrel. Gold on the other hand failed to take on safe haven appeal and plunged lower alongside equity indexes. Prices for the precious yellow metal settled near $1,680 an ounce as the trading session drew to a close.
Investors will shift their focus onto Wall Street this morning as the U.S. GDP report comes out, which makes the State Street Dow Jones Industrial Average (DIA) our ETF to watch for the day [see DIA Scorecard & Rankings]. DIA may see increased trading volume as investors react to the latest economic data release, with analysts largely expecting for third quarter GDP to come in at 2.3%, versus the previous reading of 2.5%.
Since topping out at $128.63 a share on 5/2/2011, this ETF has endured a significant correction before bottoming out near the $105 level [see Alternatives To The 20 Most Popular ETFs]. This ETF has major support around $105 a share, seeing as how it has tested, and held, support at this level on 8/9/2011, 9/22/2011, and even on 10/4/2011, although it briefly dipped as low as $103.84 a share. This ETF is up over 8% since bottoming out in early October, and although impressive, its recent comeback is far from ideal, seeing as how DIA has failed to hold support above its 200-day moving average (yellow line) for a complete trading week [see DIA Technicals].
The upside potential in DIA is undeniable, however, establishing a long position at current levels is quite speculative since this ETF is drifting right under the $120 level, which it has failed to summit over the past few weeks.
Yesterday’s sell-off brought this ETF down to critical support at $115 a share, and if GDP disappoints tomorrow, this ETF may very well continue lower towards the $110 level. One worrisome observation is the fact that DIA declined on relatively heavy-volume trading on Monday, which may suggest that further downside is likely as more investors decide to take profits amidst the uncertainty [see Tax Loss Harvesting With ETFs: 6 Ideas To Lower Client Liabilities]. However, if GDP surprises investors yet again, DIA could surge back to $120 a share, at which point we would advise short-term traders to lock-in profits. In terms of downside, if DIA breaks below $115 a share, the next level of support comes in at $110 a share followed by major support at the $105 level. 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.