Top Holding GE's Earnings Brings Vanguard Industrials ETF Into Focus Friday

| About: Vanguard Industrials (VIS)
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By Stoyan Bojinov

Stocks dipped lower on Thursday after European leaders decided to schedule a second summit meeting for next week. The prolonged debate between Germany and France spooked equity markets seeing as how investors will now have to wait yet another week before a comprehensive plan is finalized. Equities managed to regain much of the lost ground in afternoon trading, as investors were cheerful to see the Philly Fed Index showing a sign of economic expansion. Gold futures slipped a bit, and prices for the yellow metal settled near $1,620 an ounce for the day.

Industrial bellwether, General Electric (NYSE:GE), is slated to report earnings later today and analysts are expecting for the company to rake in $34.86 billion in revenues and generate a profit of $0.31 per share. GE is the top holding in the Vanguard Industrials ETF (NYSEARCA:VIS), accounting for 11% of total assets, making this our ETF to watch for today [see VIS Holdings].

Chart Analysis

Since topping out at $72.60 a share on 5/2/2011, this ETF has lost close to 18%. Currently, VIS appears to have established support around the $55 level, although the fund did slip below support on 10/4/2011, hitting a recent low of $50.93 a share [see Alternative Weighting Strategies & ETFs: Is Market Cap Weighting Flawed?]. This ETF has been stuck in a trading range for the past two months, with prices oscillating between $55 and $60 a share [see VIS Charts].

VIS has gained an impressive 14% since its low at $50.93 a share, however, investors looking to establish long positions at current levels should keep in mind that this ETF is at the top of its trading range, which it has failed to break above three times since August [see VIS Returns]. When we consider the fund’s previous attempts to break above the $60 level, it becomes apparent that profit-taking was quick to follow as soon as this ETF neared resistance levels. What we like about VIS this time around is that the fund has managed to hold its price around the $60 level, perhaps hinting that it may finally be ready to break-out higher as momentum accumulates.


Despite the lucrative upside potential, we advise conservative investors and traders alike to hold off from buying VIS until this ETF closes above $60 a share for two or more consecutive days, depending on individual risk tolerance. If history repeats itself, VIS will fail to summit the $60 level and proceed to dip lower over the coming days, likely retesting support at the $55 level some time next week. However, if GE blows past analyst estimates, the industrials sector could stage a strong rally, potentially closing above $60 a share, at which point we advise short-term traders to consider locking-in profits around the $62 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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