Major equity indexes crept lower on Wednesday as the government shutdown took its toll on investors’ confidence for yet another trading session. Profit taking pressures persisted on Wall Street alongside the gridlock on Capitol Hill, leading many to wonder just how quick our nation’s lawmakers can really get their act together [see also ETF Insider: New Defensive Position Added To Portfolio].
Our chart to watch for the day is the State Street Dow Jones Industrial Average ETF (DIA, A), which may experience volatile trading as investors digest the latest weekly jobless claims report, although any developments in Washington D.C. are sure to take precedence in terms of market-moving news. Analysts are expecting for last week’s jobless claims figure to come in at 313,000 compared to the previous reading of 305,000.
Consider DIA’s one-year daily performance chart below. This ETF has pulled back sharply over the last two weeks as debt drama resurfaced, coupled with the fact that broad-based U.S. equity benchmarks are still sitting on hefty, double-digit gains thus far on the year. DIA has been trading sideways for the last few sessions, perhaps signaling that it has carved out support above $150 a share. However, we feel that this ETF is poised to drift lower based on the fact that its support level between $145 and $147.50 a share is much more meaningful; notice how DIA managed to rebound off this level in late April, late June, and most recently in late August of this year [see also Visual Guide: Major Index Returns by Year from 1970].
Furthermore, DIA hasn’t endured a healthy correction down to its 200-day moving average since last November; this means that longer-term investors might be tempted to take more profits off the table here if the clouds of uncertainty don’t blow over soon [see How To Swing Trade ETFs].
If bearish pressures persist on Wall Street amid the government shutdown, DIA could sink further; in terms of downside, this ETF has major support around $145 a share. On the other hand, signs of resolution on Capitol Hill may prompt a rally; in terms of upside, DIA has major resistance around $155 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.