Tuesday’s ETF Chart To Watch: Industrial Select Sector SPDR (XLI)

by on July 3, 2012 | ETFs Mentioned:

Equity markets got off to a mixed start on Monday morning as conflicting data releases on the homefront paved the way for another choppy trading session. Concerns over the domestic manufacturing sector resurfaced as ISM data came in worse than expected; the figure came in at 49.7, missing expectations of 52.3 as well as last month’s reading of 53.5. On the other hand, construction spending saw a modest uptick, coming in at 0.9% versus the previous reading of 0.6% [see also ETF Insider: Be Mindful Of Profit Taking].

Investors’ attention will remain fixated at home as factory orders data hits the street latest today. The State Street Industrial Select Sector SPDR (XLI) got off to a weak start given the disappointing ISM data; however, this ETF may regain lost ground if the latest factory orders data beats expectations and helps to restore confidence in the manufacturing sector; analysts are expecting for the figure to come in at 0.1% versus the previous reading of negative 0.6% [see also Ex-Financials ETFs For Cautious Bulls].

Chart Analysis

This ETF appears to be regaining support back above its 200-day moving average (yellow line) since correcting lower over the past two months. Notice how this ETF encountered resistance at $38 a share in mid-March of this year just as it did so in July of 2011; however, what’s encouraging this time around is the fact that XLI appears to be building out support at a much higher price level, which may suggest that it’s next leg-up could take it to new highs [see also 5 Tips ETF Traders Must Know].

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One piece of potentially bearish evidence is the fact that XLI has failed to summit the $36 level previously; selling pressures prevailed on May 29 and more recently on June 19 [see also Free Report: How  To Pick The Right ETF Every Time].

Outlook

If the latest factory orders data paints an optimistic outlook for the manufacturing sector, domestic industrial stocks could be in for a very green day. In terms of upside, XLI may encounter headwinds around $36 a share, although major resistance doesn’t come in until the $38 level. On the other hand, a dismal report could just as easily sink XLI; in terms of downside, this ETF has support right underneath its 200-day moving average at around $34 a share. 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.