By Stoyan Bojinov
Domestic equity indexes finally slipped lower yesterday following a solid three-day rise. Stocks were hit as investors worries over the Euro zone resurfaced, consequently sparking a rally in the gold market. Futures prices for the yellow metal soared over $30, managing to close just around resistance levels at the $1,700 an ounce mark. Industry giants 3M and Netflix both missed analyst earnings estimates, spooking investors on Wall Street and inevitably putting downward pressure on stocks. Oil futures have been quite volatile this week and prices for crude oil climbed for a second day in a row, settling around $93 a barrel.
The U.S. durable goods report for September comes out later today around noon, bringing the spotlight to the industrial sector and making the State Street Industrial Select Sector SPDR (XLI) our ETF to watch for the day. Analysts are expecting for durable goods orders in the previous month to have declined by 0.9%, versus the previous reading of -0.1% [see XLI Holdings].
Since topping out at $38.98 a share on 5/2/2011 and breaking below its 200-day moving average (yellow) in late July, XLI appears to have finally bottomed out around the $30 level. This ETF has been fairly range-bound since August, bouncing back and forth between the $32 level and just below $30 a share. XLI traded as low as $27.67 a share on 10/4/2011, and since then this ETF has rebounded close to 15% [see XLI's Returns]. Although this fund is still in a technical downtrend because it remains below its 200-day moving average, were more bullish than bearish considering its price action over the last two weeks.
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Notice that in the past three months, XLI has tried and failed three times to close above $32 a share. Last week, when XLI was floating around the $32 level day after day, selling pressures were not able to develop and this ETF successfully closed out the week above this rather significant resistance level. Bullish momentum appears to be building as this ETF builds out support above its previous resistance level around $32 a share [see Forget BRIC ETFs: Look To VISTA Nations For Better Opportunities].
If investors are faced with a better-than-expected durable goods report, the industrial sector may get a nice boost as investor confidence in the U.S. economy improves, potentially sending XLI higher. In terms of upside, the next level of resistance for XLI comes in at $35 a share, at which point we would advise short-term traders to lock-in profits. However, if the bears take charge after a disappointing economic report, XLI will likely fall back down to $32 a share if not lower. In terms of downside, we advise conservative investors to exit any long positions if shares of XLI close below the $30 level in the coming days. 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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