Thursday’s ETF To Watch: Dow Jones U.S. Energy Sector Fund (IYE)

by on July 26, 2012 | ETFs Mentioned:

Equity markets drifted sideways with a downward bias yesterday as investors digested a string of lackluster reports. Disappointing quarterly performance results from Apple and Netflix dragged the technology sector into red territory, while political gridlock in Washington, D.C. over the looming tax vote didn’t help to restore investors’ confidence. The cherry on the cake of uncertainty was a worse-than-expected new home sales report at home along with U.K. GDP contracting by 0.7% for the quarter [see also Why Jim Rogers Thinks Gold Will Drop 20%].

Earnings Preview

Energy bellwether Exxon Mobil (XOM) is slated to report quarterly performance results later today after the opening bell on Wall Street. As such, our ETF to watch for the day is the iShares Dow Jones U.S. Energy Sector Fund (IYE), which has Exxon Mobil as its top holding, allocating close to 26% of its total assets to this industry giant. As the largest oil and gas company in the world, Exxon’s earnings release will steal the spotlight later today and should offer valuable insights into the health of the energy sector as a whole [see also Energy Bull ETFdb Portfolio].

Looking back at first quarter results in 2012, Exxon missed estimates as profits fell to $2 a share versus $2.14 a share from the year earlier. Analysts are expecting for a 10% decline in quarterly profits this time around, citing falling natural gas and crude oil prices. Exxon recently had to discontinue its shale gas exploration project in Poland, which could have a negative impact on the firm’s bottom line production growth. However, experts cite that the oil giant should see a rise in margins from its chemical and refining operations, which could offset weakness in operational performance. Analysts polled by Thomson Reuters are expecting for the company to rake in $115.08 billion in revenues and generate earnings of $1.96 a share [see also 15 Different Ways To Invest In Energy With ETFs].


IYE is currently sitting in a tough spot as shares are flirting with resistance at the 200-day moving average, which comes in at around the $40 level. This ETF recently attempted, and failed, to summit the $40 level on July 3, 2012; since then, IYE has managed to bounce off support at the $38 level, which may suggest that bullish momentum is building since the fund previously corrected down to $36 a share before making a run higher. If today’s earnings report inspires bullish fever in the energy sector, IYE could enjoy a day in green territory; in terms of upside, the first level of resistance comes in at $40 a share followed by the $42 level. If selling pressures develop, however, IYE could sink to $38 a share, while the next major support level comes in at the $36 mark. 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.