Wednesday’s ETF Chart To Watch: Dow Jones Industrial Average ETF (DIA)

by on October 12, 2011 | ETFs Mentioned:

Wall Street was fairly flat yesterday as euro zone euphoria tapered off after the Slovak government fell short on votes needed to approve the region’s $600 billion bailout fund. Chris Walker, strategist at UBS, added, “Overall, we believe the vote will eventually pass, probably now later in the week and under a caretaker government, but nonetheless these are unwelcome headlines for already shaky markets”. Investors were also hesitant to jump into the equity markets prior to the start of earnings season, which was kicked-off by Alcoa after the closing bell yesterday. Gold prices took a dive lower prior to the opening bell on Tuesday, although the precious metal still appears poised to move higher given the rising level of support that it has established. Nonetheless, futures prices for the yellow metal settled around $1,660 an ounce for the day, roughly in line with where they began the session.

Earnings season is upon us and investors will have platefuls of corporate performance results to digest over the next few weeks. Aluminum giant, Alcoa, was the first to report after the bell yesterday, posting a third-quarter profit of $172 million which missed expectations although revenues came in higher than the consensus. The State Street Dow Jones Industrial Average ETF (DIA) is our fund to watch for today as this popular ETF may experience some volatile trading as investors react to the first round of corporate performance results [see DIA Holdings].

Chart Analysis

Since topping out at $128.63 a share on 5/2/2011, DIA has shed close to 11%. As evidenced from the chart below, investors confidence took a turn for the worst towards the end of July as worries over the financial stability of the euro zone and the health of the global economic recovery greatly intensified [see Contrarian ETF Ideas: Investing In The ETF Dogs Of 2011] .

Click to Enlarge

DIA has been stuck in a volatile trading-range since August, with support and resistance levels coming in at $105 and $115 a share respectively. This ETF appears to be holding support above the $105 level, although it briefly dipped down to $103.84 a share on 10/4/2011 [see DIA Returns]. Establishing a long position at current levels is quite enticing given the great upside potential, however, we would advise conservative investors to hold off until DIA establishes support back above its 200-day moving average (yellow line).

Outlook

DIA faces some serious resistance at the $115 level as this ETF has tried, and failed three times, to close above it over the last two months. This fund will likely encounter profit-taking as shares approach the $115 mark, in which case we recommend for investors to stay on the sidelines and observe this ETF as it attempts to definitively establish support above the critical resistance level. In terms of upside, DIA can certainly climb back to $120 a share if investors are faced with better-than-expected earnings reports in the coming days [see our New Global Titans ETFdb Portfolio]. In terms of downside, the first level of support comes in at around $110 a share, while major support lies at the $105 level. 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.