U.S. equity markets rallied to kick off the week following encouraging election news out of Italy over the weekend along with upbeat results from Caterpillar (CAT), which hinted at an uptick in output from China. Corporate earnings will remain at the center of attention this week as more industry bellwethers step up to the plate, including reports from Apple (AAPL) and AT&T (T) after the closing bell today[Download 101 ETF Lessons Every Financial Advisor Should Learn].
Diversified industrial behemoth DuPont (DD) is slated to report earnings later today, which brings our spotlight onto the Materials Select Sector SPDR (XLB, A), as it allocates over 9% of its total assets to the company. Analysts are expecting for the firm to report earnings of $1.55 per share, compared to a year ago when DD reported earnings of $1.52 per share [try Free ETF Stock Exposure Tool].
XLB is currently trading in a sweet spot from a technical perspective; notice how this ETF appears to have completed a healthy correction since peaking at $40.04 a share in early March of 2013 judging by its ability to rebound off its 200-day moving average (yellow line), which has allowed it to remain within its longer-term upward sloping trading channel (blue lines). As such, entering into a long position at current levels is attractive because traders can favorably position themselves in anticipation of a run higher while still keeping a close watch on downside risk by setting a tight stop-loss near the recent low at the bottom of XLB’s trading channel [see How To Swing Trade ETFs].
Despite XLB’s bullish setup, the technical pattern at hand can still encounter headwinds if DuPont posts disappointing results later today and prompts a sell-off in the basic materials sector [see How To Take Profits And Cut Losses When Trading ETFs].
Upbeat results from DD can surely fuel XLB’s rebound; in terms of upside, this ETF has major resistance at $40 a share. On the other hand, lackluster quarterly results can also snap XLB’s winning streak; in terms of downside, this ETF has major support around $37 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.