Rising yields in Spain and the possibility of Greece leaving the eurozone after the next round of elections have added to the cloud of uncertainty looming over the debt-burdened currency bloc. Surprisingly, optimism prevailed on Tuesday as investors focused on stimulus hopes on the homefront along with news of the European Central Bank endorsing a plan to guarantee bank deposits. At home, federal budget data came in worse than expected, although the figure received minimal attention in headlines; the U.S. government posted a deficit of $125 billion versus the previous reading of $58 billion [see also How To Play A Treasury Bubble With ETFs].
Investors will have a chance to shift their attention back towards America later today as U.S. retail sales data hits the street. As such, our ETF to watch for the day is the State Street SPDR S&P Retail ETF (XRT) which may experience volatile trading depending on how markets react to the latest economic release. Analysts are expecting for retail sales to come in at -0.3% versus last month’s reading of 0.1% [see also Looking For A "Pure" Equity ETF?].
XRT has once again come down near its 200-day moving average (yellow line) since hitting its most recent all-time high at $63.04 a share on March 27, 2012. The past two months have been grueling for this ETF as a string of worse-than-expected U.S. economic data releases coupled with resurfacing eurozone debt drama paved the way for profit-taking pressures. From a technical perspective, XRT’s most recent downturn looks like a healthy correction; notice how for the most part this ETF has been moving along a steadily rising trend line (blue line) since bottoming out at $43.50 a share on August 19,2011 [see also ETF Technical Trading FAQ].
One piece of bearish evidence, however, is the fact that XRT has not yet tested its support at the 200-day moving average; ongoing volatility can easily drag this ETF down in the coming days to $56 a share or below before the long-term uptrend resumes [see Safe Haven ETF Portfolio For Conservative Investors - Sneak Peek].
Positive data on the homefront can certainly help investors’ shake off the wave of worry stemming from Europe. If retail sales data comes in better than expected, XRT may very well have the wind at its back for the day; in terms of upside, the first potential level of resistance for this ETF comes in at around $60 a share. However, if selling pressures follow this data release, XRT could retest support at the $56 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.