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

by on September 7, 2012 | ETFs Mentioned:

Bullish fever swept over Wall Street as investors’ confidence saw a massive improvement following the latest European Central Bank rate decision. Surprisingly, the ECB held the benchmark rate unchanged at 0.75%; however, its announcement of the “outright monetary transaction“ plan welcomed buyers as markets favored the newly proposed measures. At home, improvements in weekly jobless claims and ISM nonmanufacturing data also added fuel to the global rally [see also Why Bill Gross Thinks The Fed Is Ruining The Economy].

The spotlight will shift back to the homefront later today as the latest nonfarm payrolls data hits the street. As such, our ETF to watch is the State Street Dow Jones Industrial Average ETF (DIA, B-), which could swing in either direction following the employment report release at the opening bell. Analysts are expecting for 125,000 new jobs versus the last reading of 163,000, while the unemployment rate is expected to remain unchanged at 8.3% [see also Financials Free ETFdb Portfolio].

Chart Analysis

DIA rallied big time yesterday alongside major equity indexes following the ECB’s announcement of the “outright monetary transaction” plan. What’s noteworthy is the fact that this Dow Jones ETF wasn’t able to post new highs on the year, while funds tracking the S&P 500 Index and Nasdaq were able to do so. The latest commentary from the ECB served as a fundamental catalyst that propelled popular ETFs like SPY and QQQ into new highs for 2012; from a purely technical perspective, this would suggest that DIA should be next to follow [see also 17 ETFs For Day Traders].

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Conservative investors should wait and observe DIA as it settles above $133 a share (blue line) before jumping in long, in case the other two equity benchmarks mentioned above have posted misleading breakouts. If this is the case, however, a broad-based market correction could be around the corner [see also ETF Tools Every Investor Needs].

Outlook

A better-than-expected employment report would likely propel markets higher; in terms of upside, DIA has major resistance right around $133.50 a share. On the other hand, an uptick in unemployment may inspire a sell-off on Wall Street; in terms of downside, this ETF has support at $131 a share followed by the $130 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.