Friday’s ETF Chart To Watch: Barclays TIPS Bond Fund (TIP)

by on March 15, 2013 | ETFs Mentioned:

Against all odds, the bulls continue to push higher on Wall Street with the Dow Jones Industrial Average posting its tenth consecutive day of gains. Buying pressures permeated the marketplace after weekly jobless claims came in better than expected, marking yet another encouraging stride forward in the domestic labor market recovery; this figure showed that 332,000 people had filed for unemployment benefits last week versus the previous reading of 342,000 [see Visual History Of The Dow Jones Industrial Average].

The iShares Barclays TIPS Bond Fund (TIP, A) will come into the spotlight later today as investors digest the latest inflation data. Analysts are expecting February’s Consumer Price Index to come in at 1.9%, marking a notable increase from the previous reading of 1.6%.

Chart Analysis

While inflation worries have by no means evaporated from Wall Street, this ETF has been sliding lower since the beginning of December 2012 as selling pressures have hit investment-grade fixed income securities across the board. The paltry yield on inflation-protected securities has prompted investors to jump ship from TIP and into riskier assets with more lucrative upside potential amid the bull run on Wall Street. From a technical perspective, however, this ETF appears to be gearing up for a rebound in the coming days. Notice how TIP has posted lower-highs since peaking at $123.44 a share, however, its lows haven’t been that far apart, perhaps suggesting that it has bottomed out right around $120 a share (red line) [see also 101 ETF Lessons Every Financial Advisor Should Learn].

Click to Enlarge

In fact, the last time TIP established support at this level it proceeded to rebound higher and peak just above its 200-day moving average (yellow line) on March 1, 2013. Traders looking to favorably position themselves in anticipation of another rebound should set a tight stop-loss below its recent low to protect themselves from unexpected profit-taking pressures [see How To Take Profits And Cut Losses When Trading ETFs].

Outlook

If the latest CPI reports comes in well above expectations, TIP could rally as investors seek out protection from inflation; in terms of upside, this ETF has resistance right around $121 a share. On the other hand, weaker-than-expected inflation may inspire further selling of TIP; in terms of downside, this ETF has immediate support at the $120 a share  followed by the $119 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.