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As the European debt crisis goes on the back burner thanks to hopes for a new bailout package, focus is beginning to shift back to the United States and our own economic problems. Unemployment remains intolerably high and more stimulus doesn’t appear to be coming from either a monetary or fiscal route, leaving hard data as the only catalyst going forward. Unfortunately, data has been lukewarm at best in recent weeks across most fronts. Jobless claims are still well above 400,000 while CPI is rising at a rate of 3.8% a year, suggesting inflation is beginning to creep up on the economy. In light of this, many investors will likely focus in on today’s durable goods order release in order to move markets in the U.S. during Wednesday’s session.

The current economist consensus calls for a month-over-month increase of 0.2% in the key core durable goods orders, which consists of ‘long lasting’ manufactured products and excludes the often volatile transportation sector which includes the rocky airplane order segment. If realized, this 0.2% gain in core orders would represent a sharp fall from the previous month in which analysts saw a 0.8% increase in m/m terms. Investors should also note that besides last month’s beat, which came in far above expectations, analysts saw seven straight misses, dating all the way back to December, suggesting that the odds are not on the side of those looking for an expectations-beating performance later today.

Thanks to this key release, investors should look for the Industrial Select Sector SPDR (NYSEARCA:XLI) to remain in focus throughout today’s trading session. The fund tracks the Industrial Select Sector Index which includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors, and consists of about 61 securities in total. XLI is also extremely popular with traders as it trades close to 30 million shares a day, suggesting extremely tight bid/ask spreads for even the largest of orders.

In terms of performance, XLI has, like the overall market, slumped so far in 2011, losing about 13.8% since the start of the year. However, the fund has started to come back a little bit in recent days thanks to broad market hopes over a resolution to the European debt crisis and could break into the positives in shorter time frames. Should core orders beat expectations, we could see a continuation of this short-term trend and XLI will likely rise in Wednesday trading. If, however, investors see another miss in the key figure, XLI will likely continue its longer term trend downward and finish the day in the red.

Disclosure: No positions at time of writing.

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Source: Wednesday's ETF To Watch: Industrial Select Sector SPDR