Stocks finally stumbled and major equity indexes sank into red territory after enjoying a solid six day “green streak”. The main culprit behind Thursday’s sell-off was the looming standoff between politicians at home. As “fiscal cliff” woes found their way into the headlines, bearish sentiment permeated Wall Street; in fact, profit taking pressures overshadowed better-than-expected weekly jobless claims data and positive November retail sales results [see 101 High Yielding ETFs For Every Dividend Investor].
While “fiscal cliff” jitters are bound to sway stocks, investors may also look to take cues from the latest industrial production report slated to come out after the opening bell. As such, our ETF to watch is the popular State Street Industrial Select Sector SPDR (XLI, A) which may see volatile trading as it looks to summit a key resistance level; analysts are expecting for the industrial production figure to come in at 0.2%, marking a modest improvement from the previous reading of -0.4% [Download How To Pick The Right ETF Every Time].
Over the last month XLI has managed to rise back over its 200-day moving average (yellow line) after enduring a prolonged and choppy correction since recently peaking at $38.07 a share on 9/14/2012. XLI’s rebound is quite bullish considering that it has managed to climb higher along a steeply rising support line since bottoming out above $35 a share in mid-November. Despite its positive price action in recent sessions, entering into a long position at current levels is not recommended seeing as how XLI previously failed to summit the $38 level (red line) on 3/15 and later again on 9/14/2012 [see ETF Technical Trading FAQ].
We advise conservative investors who are eager to jump into a long position to wait and observe XLI as it establishes support above the $38 level before pulling the buy trigger [see The 5 Most Important Chart Patterns For ETF Traders].
If the upcoming industrial production data is surprisingly positive, it may be the fundamental boost needed to propel XLI past resistance at the $38 level. On the other hand, if history repeats itself from a technical perspective, this ETF could be in for a sour reversal; in terms of downside, XLI has major support around $36 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Follow me on Twitter @SBojinov
Disclosure: No positions at time of writing.