Stocks quietly retreated into shallow red territory on Wednesday as investors expressed their concerns over the potential Fed taper in September, while the latest Bank of England minutes revealed gridlock among policymakers overseas. Surprisingly, the bulls failed to take notice of the eurozone GDP report, which marked the first positive quarter in 18 months for the currency bloc [Download 101 ETF Lessons Every Financial Advisor Should Learn].
Out ETF to watch for the day is the State Street Industrial Select Sector SPDR (XLI, A), which may experience volatile trading as investors digest the latest industrial production data on the home front. Analysts are expecting for this figure to come in at 0.2%, marking a slight slowdown in industrial activity from the previous month’s reading of 0.3%.
Consider XLI’s one-year daily performance chart below. This ETF has been charging higher within a fairly well-defined trading channel since bottoming out in mid-November of last year; notice how XLI has rebounded off the lower support boundary upon hitting it, while at the same time pulling back after it deviated above its upper resistance boundary for an extended period of time. With XLI currently trading in the upper-half of its longer-term channel, we would advise conservative investors to hold off from jumping in long in anticipation of a better buying opportunity over the coming weeks [see How To Swing Trade ETFs].
At the same time, jumping into a short position is quite speculative when considering the strong, long-term uptrend at hand. Instead, we advise conservative bullish investors to wait until XLI definitively breaks out above $46 a share or holds above $42 support following the next pullback [see 7 Rules ETF Day Traders Must Know].
If industrial production data misses expectations, XLI could fall victim to profit taking; in terms of downside, this ETF has immediate support around $44.50 a share followed by the $42 level. On the other hand, upbeat industrial data can inspire the bulls to rally; in terms of upside, this ETF must settle above resistance at the $46 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.