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

by on March 28, 2012 | ETFs Mentioned:

Stocks broadly ended the trading session on a sour note as less-than-stellar data paved the way for profit taking pressures. Major indexes on the home front ended up in red territory after consumer confidence came in worse-than-expected; the figure came in at 70.2, falling short of analyst estimates and dipping below last month’s reading of 71.6. Surprisingly, gold inched lower amidst resurfacing uncertainties on Wall Street; futures prices for the precious metal settled near $1,680 an ounce as the trading session drew to a close [see also Does GLD Really Hold Gold, Or Is It A Scam?].

Investors will keep their eyes on the home front today as key manufacturing data hits the street. Our ETF to watch for the day is the State Street Industrial Select Sector SPDR (XLI) which may see an increase in trading volumes as Wall Street digests the latest durable goods data [see ETF Insider: Do Fundamentals Justify The Wall Street Rally?]. Analysts are expecting for 2.9% growth in February orders, which is a signficant improvement from the previous reading of negative 3.7%.

Chart Analysis

XLI has staged a very impressive comeback since bottoming out on 10/4/2011; in fact, this ETF has gained upwards of 30% since then and is now approaching its 2011 high at $38.98 a share set back on 5/2/2011 [see XLI Returns]. This ETF has gathered tremendous momentum since the start of 2012 as encouraging fundamental news on the home front have restored confidence and lifted recovery hopes, bolstering the industrial sector. It’s not hard to see that the ongoing uptrend, which started in October 2011, bears a close resemblance to the previous uptrend which started at $26.79 a share and peaked at $38.98 a share.

Click To Enlarge

Despite the obvious bullish price action over the past several weeks, establishing a long position in XLI at current levels is quite speculative seeing as how it is trading near a historically significant resistance level around $38 a share.

Outlook

A better-than-expected durable goods report will likely spark optimism and bolster the industrial sector higher [see also ETFs For Rising Copper Prices]. Likewise, XLI may very well continue to march higher, although caution should be exercised as it nears $38 a share, seeing as how this is a historical resistance level for the fund. On the other hand, if durable goods data slumps, investors may find themselves pulling the sell trigger instead. In terms of downside, this ETF has support at the $36 level, followed by major support at the 200-day moving average (yellow line) near $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.