Domestic equity indexes struggled to rebound yesterday following their bearish start at the beginning of the week. Profit taking pressures stuck around as lackluster economic data on the day gave investors little reason to buy back in; the consumer confidence index came in at 79.9, falling short of last month’s reading of 81.8 [see 3 ETF Trades To Make Before The Congress Showdown].
Our ETF chart 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 durable goods orders data. Analysts are expecting for this figure to have contracted by 1.5% in August, compared to last month’s reading, which showed a more worrisome contraction of 7.4%.
Consider XLI’s one-year daily performance chart below. This sector ETF has been climbing higher within a fairly well-defined upward sloping trading channel (blue lines) since the end of last year. When considering the chart below, we can see that XLI has a tendency to correct lower upon hitting or deviating above its upper-resistance boundary for an extended period of time; likewise, XLI has a history of rebounding off its lower-support boundary upon nearing it, as seen most recently at the start of this September [see also 3 Contrarian Indicators ETF Investors Must Know].
With XLI currently trading closer to the upper-resistance boundary, some might be tempted to open a short position in anticipation of further downside. However, we advise conservative investors to hold off from taking such a bet given the steep, longer-term uptrend at hand; most would be better off waiting for a better buying opportunity instead of trying to perfectly time the pullback [see Picture Edition: The Complete History of the Dow Jones Industrial Average].
If the latest durable goods report comes in better-than-expected, industrial stocks should rally higher on the day; in terms of upside, XLI has stiff resistance at $48 a share. On the flip side, worse-than-expected durable goods data can inspire further profit taking across Wall Street; in terms of downside, XLI has immediate 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.