DIA: Most Trends Are Positive

Summary

• The macroeconomic backdrop is positive.
• The DIA has performed fairly well during multiple time frames.
• The charts are mostly positive.

Photo by bopav/iStock via Getty Images

Whenever I look at an ETF that tracks a major index, I first look at the macroeconomic backdrop to determine if the economy is expanding or contracting. The former means the index is likely to rise; the latter means the index will probably contract. Then I look at various charts of the index to determine if the timing is right to take a new position.

The overall trend remains bullish. However, more cautious investors might want to wait until the ETF breaks through the 343/344 area.

I've written several other articles that contain key macroeconomic data (see here, here, here, and here). The data below adds onto the information cited in the links.

Let's break the US economy down into two sectors -- services and manufacturing. Both are growing at strong rates. From IHS Markit (emphasis added):

The seasonally adjusted final IHS Markit US Services PMI Business Activity Index registered 64.7 at the start of the second quarter, up from 60.4 in March and higher than the earlier released 'flash' figure of 63.1 to signal a marked increase in service sector business activity. The robust upturn in output was the sharpest since data collection began in late-2009. Many firms noted that the expansion was linked to stronger client demand and a rise in new sales. Some companies, however, stated that output has not yet recovered to pre-pandemic levels

New business increased at the most marked pace on record in April, with the rate of expansion accelerating for the fourth month running. The upturn was commonly attributed to the relaxation of lockdown measures and further reopening of businesses, with client demand expanding.

Here's a chart of the data:Manufacturing is similarly strong (emphasis added):

The seasonally adjusted IHS Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 60.5 in April, up from 59.1 in March and broadly in line with the earlier 'flash' estimate of 60.6. The PMI figure was the highest since data collection for the series began in May 2007 and signalled a marked expansion.

Contributing to the greater headline figure was a sharp and faster upturn in production across the manufacturing sector. Output growth was commonly linked to a stronger rise in new orders, although some companies continued to highlight pressure on capacity following raw material shortages.

New orders increased markedly in April, with the rate of expansion accelerating to the fastest for 11 years. Firms noted that the upturn was due to stronger client demand, with some companies mentioning that customers were placing larger orders amid substantial supplier delivery delays. At the same time, new export orders expanded at the second-quickest rate on record as lockdown restrictions eased in key export markets

Here's a chart of the data:

As with the service data, this is the highest ever printed for the series.

This week's ISM data confirms the above information.

The ISM service index is just shy of a 15-year high.The ISM manufacturing index is near a multi-year high.

Finally, here's the latest Weekly Economic Index from the NY Fed, which uses high-frequency data to project the current pace of GDP growth: Growth is picking up.

Economic conclusion: the current state of the US economy is bullish. Both the service and manufacturing sectors are growing at solid rates while the latest WEI is near a 1-year high.

Next, let's compare the NYSEARCA:DIA's performance during various time frames with the following index-tracking ETFs: IWC, IWM, IJH, SPY, OEF, and QQQ:

	Week	Month	3-Months	6-Months	1-year
DIA's performance	1st	4th	2nd	4th	7th

Click to enlarge

Data from Finviz.com

Overall, the DIA has performed fairly well. The 7th place finish during the 1-year time frame is modestly misleading, since it was still up over 40%.

Finally, let's take a look at three charts, starting with the one that focuses just on the EMAs:

DIA 1-year; EMAs only

The benefit of the above chart is that it strips out daily price noise. And, each EMA is basically a trend for a different time frame. This is the most bullish alignment possible: the EMAs move from the Southwest to the Northeast. All are moving higher and the shorter are above the longer.

DIA Weekly

The DIA has been in an upward sloping channel since last May. Prices are currently at the top end of that channel.

DIA

The only drawback to this index right now is that prices are consolidating in a triangle. They've also had a difficult time moving through the 343 area.

Most of the data is positive, therefore warranting a position. If you want to be cautious, wait for the index to move through the 343 area.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.