Wednesday’s ETF Chart To Watch: XLI Gears Up For Rally Ahead Of Manufacturing Data

by on May 1, 2013 | ETFs Mentioned:

The S&P 500 Index climbed to all-time highs of 1,597.57 yesterday as bullish euphoria reigned supreme following encouraging economic data releases on the day. Investors rejoiced after Case-Shiller home price data came in above expectations and the latest consumer confidence reading came in at 68.1, marking a sizable improvement from last month’s figure of 61.3 [See S&P 500 Visual History].

Our ETF to watch for today is the Industrial Select Sector SPDR (XLI, A), which should see an uptick in trading activity as investors react to the latest ISM Manufacturing data. Analysts are expecting for the ISM figure to come in at 50.5, which would mark a small contraction from last month’s reading of 51.3.

Chart Analysis

Consider XLI’s one-year daily performance chart below. Since the start of Wall Street’s rally on November 16th, 2012, this ETF climbed higher within a well-defined upward sloping channel (blue lines) up to its peak at $42.16 a share on 3/14/2013; since then, XLI has failed to re-enter its longer-term trading channel as deteriorating manufacturing data coupled with worse-than-expected GDP growth has kept a lid on confidence in the industrials sector. Furthermore, since its recent peak, XLI has posted lower-highs and lower-lows, perhaps hinting at a potential trend reversal [see How To Swing Trade ETFs].

Click to Enlarge

Nonetheless, there is also some bullish evidence that XLI will continue its rally; notice how this ETF managed to rebound off $40 a share, similar to its price action in late February, after which XLI rallied higher. Also, this ETF has managed to build out a rising level of support above $41 a share in recent days, adding weight to its potentially bullish technical set-up [see ETF Call And Put Options Explained].

Outlook

If the latest ISM report comes in better-than-expected, XLI should have the wind at its back for the day. In terms of upside, this ETF has stiff resistance at $42 a share, but on the other hand, disappointing manufacturing data could welcome profit taking pressures. In terms of downside, XLI has major support around the $40 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.