Tuesday’s ETF To Watch: Telecom ETF (VOX)

by on July 24, 2012 | ETFs Mentioned:

Stocks markets around the globe kicked off the week on a dismal note as intensifying pressures over Europe’s debt drama welcomed back the bears on Wall Street. Gold and oil tanked alongside major equity indexes as concerns over rising yields on Spanish and Italian government bonds prompted officials overseas to impose a temporary ban on short-selling. On the homefront, investors digested lackluster corporate earnings from McDonald’s, which missed estimates thanks to slow growth across U.S. stores [see also 5 ETFs To Own During The Next Market Collapse].

Earnings Preview

Telecom giant AT&T (T) is slated to report quarterly performance results later today as the opening bell on Wall Street kicks off trading. As such, our ETF to watch for the day is the Vanguard Telecom ETF (VOX), which has AT&T as its top holding, allocating roughly 23% of its total assets to this industry bellwether. This earnings release will be watched by many as it should offer valuable insights into the health of the telecom sector as a whole [see also High Tech ETFdb Portfolio].

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Looking back at first quarter results of this year, AT&T got off to an encouraging start and reaffirmed its guidance for 2012, citing increasing profit margins for their wireless business along with stable wireline margins. Increasing adoption rates for smartphones, including both Android devices and the iPhone, are expected to remain a driving force for the company’s retail wireless subscriber base. Analysts are expecting for the telecom giant to report a profit of 63 cents a share this time around, marking a 4.47% increase on a year-over-year basis [see also ETFs For The Touchscreen Revolution].

Outlook

VOX posted a recent high of $70.66 a share on July 18, 2012, and since then this ETF has endured three dismal days of sharp declines. If today’s report paints a bullish outlook for the telecom sector, expect for this ETF to rally; in terms of upside, the next level of resistance comes in at $70 a share. On the other hand, if selling pressures prevail, VOX could very well continue to sink lower; in terms of downside, this ETF has support at $68 a share followed by the $66 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.