Stocks kicked off the trading week with a minor loss as profit-taking pressures permeated the scene due to a number of looming uncertainties in the days ahead. For starters, earnings season is still in action and worrisome outlooks from bellwethers may set a volatile tone on Wall Street. Furthermore, investors have their eyes and ears set on the FOMC commentary expected to take place on Wednesday, while July’s monthly employment data will be the center of attention on Friday [see also The Complete Visual History Of SPY].
Our ETF to watch for today is the State Street SPDR S&P Retail ETF (XRT, A), which will look to overcome a key resistance level as investors digest the latest consumer sentiment data. Analysts are expecting for July’s consumer confidence figure to come in at 81.1, marking a slight deterioration from last month’s reading of 81.4.
Consider XRT’s one-year daily performance chart below. This sector ETF has enjoyed a stellar run-up along a fairly predictable support line since rebounding off the 200-day simple moving average (yellow line) at the very end of 2012; notice how XRT has managed to rebound off its 50-day simple moving average (blue line) on several occasions over the past year. What’s also noteworthy is that this ETF has a tendency of correcting lower after grinding along a resistance level for an extended period of time; also notice how each pullback in 2013 has been followed by a fairly predictable rebound off the 50-day SMA [see ETF Call And Put Options Explained].
With XRT failing to summit the $81.50 level (red line) for more than two weeks now, we feel that a pullback may be right around the corner; we would advise conservative investors from taking a short position here despite the attractive profit potential because XRT remains in a very strong, long-term uptrend [see How To Take Profits And Cut Losses When Trading ETFs].
If the latest confidence data disappoints, XRT should trade lower; in terms of downside, this ETF has immediate support along the $80 level followed by major support around $75 a share. On the other hand, if confidence data beats expectations, XRT may receive the much-needed catalyst to propel it past resistance; in terms of upside, this ETF has no clear-cut resistance level in sight besides the previous high at $81.55 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.