Stock markets have endured an up-down week thanks to looming Euro zone debt woes plaguing investors’ confidence. Volatility levels remain elevated as the threat of Greece exiting the euro appears to have intensified. On the home front, economic data releases have been largely positive; new home sales data beat expectations, along with stronger-than-expected durable goods orders in April. Major equity indexes appear to be stabilizing, although lingering Euro zone drama may very easily steal the headlines next week [see ETF Technical Trading FAQ].
Investors will turn their attention to the latest University of Michigan Consumer Sentiment report later today to gain more insights into the health of the domestic consumer. As such, the State Street SPDR S&P Retail ETF (XRT) is on our radar screen for the day as it may see an increase in trading volumes following this release. Analysts are largely expecting for the sentiment reading to come in unchanged from last month at 77.8 [see also 3 ETF Trading Tips You Are Missing].
XRT has endured a healthy correction over the past few weeks since topping out at $63.04 a share on 3/27/2012. This ETF appears to be establishing support around current levels, although caution should be exercised as it may retest support around its 200-day moving average (yellow line) or $55 a share. From a longer-term perspective, despite its recent correction, XRT appears poised to continue its trek higher, moving along the same upward sloping support line (blue line) since hitting a low at $43.50 a share on 8/19/2011.
One potentially bearish piece of evidence however is the fact that trading volumes have decreased over the past five days, while the price has risen; this divergence between price action and volume may signal a potential reversal, although the trend is still up until support at $57 a share is broken [see also 101 ETF Lessons Every Financial Advisor Should Learn].
If consumer sentiment paints an optimistic outlook, the domestic retail sector could have the wind at its back. Likewise, XRT may climb back over $60 a share, although caution should be exercised as it nears $62 a share, seeing as how this is a major resistance level. On the other hand, a disappointing report may very well spell trouble for XRT on the day. In terms of downside, this ETF has support at the $57 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.