U.S. markets opened in red territory Thursday morning as overnight selling pressures from Japan spilled over and prompted a global wave of profit taking. Investors scaled back their risk appetites for a second day in a row as stimulus hopes started to fade following the latest FOMC minutes which revealed that the Fed could be easing up on its bond-repurchases as early as June. Despite the selling pressures, the bulls still managed to return on the home front as major U.S. benchmarks crawled higher during the entire session with the Dow Jones Industrial Average almost posting a gain on the day [see also The Cheapest ETF For Every Investment Objective].
Our ETF to watch for today is the Industrial Select Sector SPDR (XLI, A) which could swing in either direction as investors digest the latest durable goods orders data. Analysts are expecting for this figure to post an increase of 1.4%, which would mark a major improvement following last month’s contraction of 6.9%.
Consider XLI’s one-year daily performance chart below. This stock has been trading higher along rising support for the last year with selling pressures typically coming in as the security grinds along the blue resistance line for extended periods of time. Since breaking above $42 a share (red line) at the start of May this year, XLI has been on a steep run higher; what’s also noteworthy is that this recent rally managed to carry XLI past the rising resistance line, which should have served as a signpost for an impending pullback [see 101 ETF Lessons Every Financial Advisor Should Learn].
Given the recent price action, it seems that XLI might have to digest its stellar year-to-date seeing as how the stock has posted two big red bars after peering above its resistance line. The next major support doesn’t come in until the previous resistance level (red line) around $42 a share, however, XLI could continue to grind higher since it has a history of flirting with its resistance line for extended periods of time [see also How To Swing Trade ETFs].
If the latest durable goods report shows an uptick in industrial activity, XLI should have the wind at its back; in terms of upside, this ETF has no clear-cut resistance level ahead of itself besides establishing definitive support above $44 a share. On the flip side, disappointing durable goods data could encourage more profit taking on Wall Street ahead of the prolonged holiday weekend; in terms of downside, XLI has immediate support at $43 a share followed by major support at the $40 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.