Wednesday's ETF Chart To Watch: Global X Aluminum ETF

Apr.11.12 | About: Global X (ALUM)

Equity markets turned south on Tuesday as pre-earnings jitters coupled with resurfacing Euro zone debt woes paved the way for selling pressures. Stocks in the overseas currency bloc plunged as Spanish and Italian government bond yields surged, reminding investors of the looming debt drama. Amidst the volatility on Wall Street, demand for safe haven assets climbed, bolstering gold higher; futures prices for the precious yellow metal jumped over a full percentage point on the day, settling near $1,660 an ounce as the trading session drew to a close.

With no major economic data releases, investors will turn their attention to corporate earnings season which kicked off yesterday after the closing bell with Alcoa (NYSE:AA). Investors will react to the latest quarterly performance results from the leading aluminium producer, which makes the Global X Aluminum ETF (ALUM) our chart to watch for the day; this product could see an increase in trading volumes as it allocates close to 10% of its total assets to Alcoa.

Chart Analysis

This ETF has endured a gruesome 2012 thus far seeing as how it has largely failed to partake in the broad-based equity market rally. In fact, ALUM has been facing serious headwinds since it launched back in January of 2011; notice how this ETF has been stuck in a downtrend every since failing to summit the $16 level back in February and April of last year. However, this ETF appears to have bottomed out near $9 a share, seeing as how it held support above this level on 10/4, 11/25, and most recently on 12/19/2011.

Click to enlarge

Click to enlarge

Although establishing a long position at current levels appears attractive given the tremendous potential for upside, investors should exercise caution. Notice how ALUM has been unable to summit the $11 level since bottoming out; this ETF has failed to break above resistance on 10/27/2011 and most recently on 2/9/2012.

Outlook

Depending on how investors react to the latest earnings results from Alcoa, the Global X Aluminum ETF could gap in either direction. If the aluminum giant paints an optimistic outlook, ALUM could have the wind at its back. In terms of upside, this ETF has considerable resistance at $11 a share, seeing as how it has previously failed to summit this level. On the flip side, ALUM could slip lower if selling pressures accelerate following the earnings release. In terms of downside, major support for this ETF lies at the $9 level. 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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