Equity markets kicked off the the week on a sour note as profit-taking pressures spilled over on the homefront following another gridlocked weekend in Europe. Investors extended last week’s theme of profit-taking after it was reported that German Chancellor Angela Merkel and French President Francois Hollande failed to agree on a time frame for initiating joint oversight of the currency bloc’s banking system. This week should offer plenty of catalysts for traders as a number of key reports are slated to hit the street, including U.S. GDP and a handful of housing market statistics [see also ETF Insider: Bears Are Lurking].
The spotlight will come later today as markets digest the latest consumer confidence data. This make the StateStreet SPDR S&P Retail ETF (XRT, A-) our fund to watch for the day as it may experience volatile trading following the release. Analysts are expecting a modest improvement in consumer sentiment, with estimates coming in at 65 compared to the previous reading of 60.6 [see also How QE3 Shakes Up Gold].
This ETF appears to be encountering minor headwinds since it soared to 2012 highs at $65.47 a share on September 14, 2012. Notice how XRT has been trading sideways with a downward bias since shares soared past previous resistance at the $62.50 level. From a technical perspective, this recent dip appears as an attractive entry point given the long-term uptrend at hand. However, we advise conservative investors to hold off from jumping in long at current levels seeing as how a break below the $62.50 mark could welcome accelerating selling pressures that may drag this ETF closer to its 200-day moving average (yellow line) over the coming weeks [see also ETF Technical Trading FAQ].
Furthermore, trading volumes have been lackluster over the past two months, which could warrant a correction given the worrisome divergence between price and volume since June of 2012 [see also 5 Tips ETF Traders Must Know].
Better-than-expected consumer confidence should welcome the bulls in the retail sector; in terms of upside, the next resistance level for XRT comes in at $65 a share. However, if the latest data shows a declining consumer sentiment, profit-taking pressures could quickly emerge; in terms of downside, this ETF has immediate support at $62.50 a share followed by the $58 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.