Thursday’s ETF Chart To Watch: XLI Rally In Focus After Philly Fed Manufacturing Data

by on September 19, 2013 | ETFs Mentioned:

Major U.S. equity indexes rallied to all-time highs as investors rejoiced over the Federal Reserve’s decision to hold off from tapering bond-repurchases this time around. Bullish momentum swept over Wall Street as fears of cutting back on stimulus seemingly evaporated after Chairman Bernanke affirmed the Fed’s “accommodative” stance [see Picture Edition: The Complete History of the Dow Jones Industrial Average].

Our ETF to watch for today is the State Street Industrial Select Sector SPDR (XLI, A), which will look to continue its rally after investors digest the latest regional manufacturing data. Analysts are expecting for the Philly Fed Index to come in at 11, which would be a modest improvement from last month’s reading of 9.3. 

Chart Analysis

Consider XLI’s one-year daily performance chart below. This ETF has been climbing higher within a fairly well-defined trading channel (blue lines) since breaking above its 200-day moving average (yellow line) in mid-November of 2012. XLI recently struggled to break above resistance at the $46 level, but recent fundamental developments have helped propel it to new highs; yesterday’s Fed decision to hold off from reducing bond-repurchases resonated very well among cyclical securities as investors saw it as an opportunity to increase their risk appetite in light of the Fed maintaining its stimulus “lifeline” [see Picture Edition: Major Asset Class Returns From The 2009 Bottom].

XLI

Click to Enlarge

From a technical perspective, new buyers should be aware that XLI is trading near the upper-resistance boundary of its longer-term channel, which means that a pullback could be right around the corner; nonetheless, taking a short position is not recommended here given XLI’s steep, longer-term uptrend at hand [see 101 ETF Lessons Financial Advisors Should Learn].

Outlook

If the latest Philly Fed manufacturing data comes in above expectations, XLI will likely continue its steep ascent; in terms of upside, XLI has no clear-cut resistance levels ahead, seeing as how it is trading in uncharted territory. On the other hand, disappointing data may inspire a pullback for the industrials sector; in terms of downside, XLI has support at $46 a share followed by the $44 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.