By Stoyan Bojinov
Stocks drifted lower on Wednesday after eurozone debt-woes resurfaced and investors at home were disappointed with Apple’s rare earnings miss. Despite slightly worse-than-expected third quarter performance results, analysts at Deutsche Bank are maintaining their “Buy” rating on shares of Apple (AAPL), with a price target of $530. Beige Book data was also released yesterday, showing that the U.S. economy remains on track for a modest recovery. “The report supports the perception that the post-downgrade volatility has caused the economy to slow, but not collapse,” said Thomas Simons, money market economist at Jefferies. Gold prices remain range-bound and the precious metal drifted lower on Wednesday despite weakness across equity markets. Futures prices for the yellow metal settled just above $1,640 an ounce for the day.
Telecom giant AT&T (T) is slated to report earnings later today and analyst are expecting for the company to rake in $31.62 billion in revenues and generate a profit of $0.61 a share. AT&T is the top holding in the iShares Dow Jones U.S. Telecommunication Index Fund (IYZ), accounting for 18% of total assets, making this our ETF to watch for the day [see IYZ Holdings].
Since peaking at $25.89 a share on 5/31/2011, IYZ has lost close to 18% of its value and the fund appears to have established support above the $20 level [see ETF Leaders: Best Performing ETFdb Portfolios Of 2011]. However, investors should note that this fund did in fact dip below support on 10/4/2011, hitting $18.97 a share. This is only a minor concern seeing as how the heavy-volume trading (notice the volume on 10/6/2011) took place when the price was back above $20 a share [see IYZ Charts].
IYZ may appear a bit shaky from a technical perspective seeing as how the fund has only tested support at the $20 level twice. However, we believe that the $20 mark is, in fact, a major support level, seeing as how the price held above $20 a share during the three most active days (volume was at or above two million shares) on 9/22, 9/27, and 10/6/2011.
Going long IYZ at current levels is a bit speculative since this ETF is stuck in “no man’s land” so to speak; it can soar past $22 a share, but it can just as easily re-test support at the $20 level. If AT&T surpasses analyst expectations, the telecom sector may rally, potentially sending IYZ towards $22 a share, at which point we would advise short-term traders to lock-in profits. Likewise, if the telecom giant disappoints, then shares of IYZ may drift down to the $20 level by the end of the week.
Investors looking to buy IYZ for the long haul ought to consider waiting until this ETF can establish definitive support, for several consecutive days, above $22 a share. Despite the attractive upside potential, IYZ is still a risky play for conservative investors, since the fund is still trading below its 200-day moving average (yellow line). As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Disclosure: No positions at time of writing.
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