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

by on July 10, 2012 | ETFs Mentioned:

Equity markets started off the week on shaky footing as rising yields on Spanish bonds collided with pre-earnings jitters on Wall Street, sending major indexes into red territory. Aluminum giant Alcoa unofficially kicked off earnings season yesterday after the bell; the industrial behemoth posted a loss of $2 million compared with a profit of $322 million one year ago. In international news, China’s CPI slid to 2.2% over the weekend versus the previous reading of 3.0%, adding to the growing cloud of uncertainty looming over the global economic recovery [see also ETF Insider: Earnings Jitters Are Back].

With earnings season under way on the homefront, the State Street Dow Jones Industrial Average ETF (DIA) makes its way onto our radar screen. This ETF could gap in either direction at the opening bell today, depending on the overnight reaction to Alcoa’s disappointing performance results. Later today investors will also digest the latest job opening data, with analysts looking for the figure to beat last month’s figure of 3.4 million, while a big surprise to the downside would likely pave the way for profit taking across the board [see also Africa ETFs: Cure For The Common Portfolio?].

Chart Analysis

DIA appears to have endured a healthy correction since recently peaking at $133.14 a share on May 1, 2012; notice how this ETF has managed to bounce off its 200-day moving average (yellow line) and also advance higher along a rising support level (blue line) since its most recent bottom at June 4, 2012. One piece of bearish evidence, however, is the fact that DIA’s most recent run up, starting on June 4, has also been accompanied by falling volume (red line). This sort of disconnect between price and volume may be interpreted as a sign of weakness, seeing as how its generally healthier for securities to rise in price with increasing volume as an indication to confirm growing demand [see also ETF Technical Trading FAQ].

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Conservative investors looking to take on a long position in DIA ought to consider waiting before it establishes definitive support above $130 a share since it has considerable resistance around this price level [see also DOD vs. DIA: A Better Dow Jones ETF?].

Outlook

Corporate earnings will steal the headlines over the coming weeks, although major developments in the eurozone will likely take precedence as debt drama has long been the main issue plaguing investors’ confidence. Depending on how markets react to Alcoa’s earnings miss, DIA could be in a for a wild trading day. In terms of upside, this ETF has resistance around $130 a share, while major resistance doesn’t come in until the $132 level. On the other hand, a bearish reaction at the opening bell could send DIA back below $126 a share, with support coming in at the $124 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.