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By Stoyan Bojinov

Equity markets fluctuated between positive and negative territory on Thursday as investors’ sentiment swayed. On the home front, the U.S. economic recovery continues to slowly, but surely, progress as new claims for unemployment benefits dropped to the lowest level since April of 2011, suggesting that the labor market condition are indeed improving. Tensions remains high in the Euro zone as investors are still unsure of the ECB’s ability to ensure stability in the region. However, confidence did improve after Standard & Poor’s reiterated France’s AAA credit rating and even went onto affirm the nation’s stable economic outlook. Gold plunged early in the morning, although the precious metal did regain quite a bit of ground throughout the trading session, closing around $1,765 for the day.

The University of Michigan consumer confidence report is slated to come out later today and analysts are expecting for the figure to come in at 61.5, which is an improvement from the previous reading of 60.9. Consumer confidence is usually an indirect indicator of consumer spending, which brings the spotlight on the State Street SPDR S&P Retail ETF (XRT) for today [see XRT Scorecard & Rankings].

Chart Analysis

XRT has been one of the most resilient sector ETFs this year, seeing as how this fund has managed to hold its ground quite well amidst all of the chaos and volatility that have plagued equity markets since the beginning of August [see Surprising ETF Standouts Of 2011]. Notice how this ETF has considerable support at the $45 level, seeing as how it has tested and held this level multiple times since August through October of this year. XRT is back above its 200-day moving average (yellow line), suggesting that this fund has completed a healthy correction and is now ready to resume its longer-term uptrend [see XRT Charts].

click to enlarge

Despite all of the bullish momentum in XRT, downside risks still remain since this ETF can be expected to exhibit weakness and trade lower if Euro zone worries spark yet another broad based market sell-off in the coming days.

Outlook

If consumer confidence comes in better-than-expected, investors might find themselves in a buying frenzy as they look to scoop up beat down securities on the cheap. Likewise, improving confidence translates into increased spending, which can pave the way higher for domestic retailers, potentially sending XRT back up to $54 a share. We advise short-term traders to lock-in profits at $54 a share since this a resistance level that XRT has failed to summit previously in late October.

On the other hand, if confidence is weaker-than-expected, selling pressures may force XRT back down to the $50 level. This ETF is poised to move higher from a technical perspective and a bullish outlook will be affirmed once XRT closes above the $54 level for two or more consecutive days, depending on individual risk tolerance. 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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Source: UMich Confidence Report Brings SPDR S&P Retail Report Into Focus Friday