Thursday’s ETF Chart To Watch: GLD Heading To Support Ahead Of U.S. Inflation Data

by on May 16, 2013 | ETFs Mentioned:

The bulls continue to reign supreme on Wall Street as buying pressures mounted even after domestic economic reports came in mixed. Investors focused on stimulus hopes and major equity indexes continued their ascent to record highs in light of lackluster manufacturing data; industrial production for April posted a 0.5% contraction, marking a noticeable deterioration from last month’s positive reading of 0.3%. On the bright side, the homebuilders’ index posted a modest improvement, coming in at 44 compared to last month’s reading of 41 [see also The Cheapest ETF For Every Investment Objective].

Our ETF to watch for today is the SPDR Gold Trust (GLD, A-), which will look to hold above a major support level after investors digest the latest U.S. CPI report. Analyst are expecting for inflation to come in at 1.8%, which would mark a minimal decrease from last month’s reading of 1.9%.

Chart Analysis

Consider GLD’s one-year daily performance chart below. Since breaking below its major support level (blue line) at $150 a share in mid-April of this year, GLD has staged an impressive comeback, although bullish momentum seems to be evaporating in recent days. Notice how this ETF bounced sharply off the $130 level following its steep sell-off. While its rebound is certainly encouraging, notice how this fund hovered underneath the  $144 level (red line) for two weeks. Over the past few days, selling pressures have returned to the gold market and GLD appears to be headed back to its support near $130 a share after failing to summit the $145 level [see also ETF Call And Put Options Explained].

Click to Enlarge

We advise conservative investors looking to jump in long to consider waiting and observe how this ETF behaves over the next few days as it nears its major support level, because further profit taking pressures may offer a better entry point [Download 101 ETF Lessons Every Financial Advisor Should Learn].

Outlook

If inflation comes in weaker-than-expected, GLD could tumble lower as investors shift away from the safe havens. In terms of downside, this ETF has major support around $130 a share. On the other hand, an unexpected uptick in CPI could spark a rally for precious metals. In terms of upside, this ETF has stiff resistance right around the $144 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.