Wednesday’s ETF Chart To Watch: Dow Jones U.S. Pharmaceutical Index Fund (IHE)

by on October 17, 2012 | ETFs Mentioned:

Stock markets logged another session in green territory as upbeat earnings results collided with optimistic speculation that Spain would soon request bailout assistance. Positive economic data at home also helped to restore investors’ confidence in the recovery; industrial production in September increased by 0.4%, marking a major improvement from the previous month’s reading, which showed a contraction of 1.4% [see 101 ETF Lessons Every Financial Advisor Should Learn].

Earnings season will continue full steam ahead and pharmaceutical giant Abbot Laboratories (ABT) will come into spotlight as the company reports quarterly performance results in the morning. As such, the iShares Dow Jones U.S. Pharmaceutical Index Fund (IHE, B+) is our ETF to watch for the day given that Abbot holds the number four spot in its top-ten holdings, accounting for 7.25% of total assets [see Free 7 Simple & Cheap All-ETF Portfolios].

Chart Analysis

Analysts are expecting fiscal year earnings of $5.06 per share with quarterly revenues totaling approximately $9.91 billion. While Abbot stock isn’t the largest allocation in IHE, the company’s performance results still hold major influence over the fund’s performance on the day as the report will shed insights on the pharmaceutical sector as a whole. IHE has been steadily marching higher (red line) since the beginning of the year, managing to quickly resume its uptrend following brief pullbacks. Seeing as this fund recently touched support, another bullish bounce would mean fresh highs closer to $95 a share for IHE [see also 3 ETF Trading Tips You Are Missing].

Click to Enlarge

Investors should also note that IHE was able to post new highs yesterday as above-average trading volumes stepped in, further showcasing the sheer strength of the bullish momentum carrying this ETF [see also Time To Buy Coal?].

Outlook

Stellar earnings from Abbot can certainly inspire a rally across the entire pharmaceutical sector; in terms of upside, IHE has no clear resistance levels in sight, although profit-taking pressures may arise as the fund nears $95 a share. On the other hand, disappointing performance results may welcome the bears to this corner of the market; in terms of downside, the next major support level for this ETF lies around $89 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.