Friday’s ETF Chart To Watch: CAD Rebound Hinges On Canada GDP Report

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The bulls jumped right back into the swing of things yesterday following Wednesday’s flat session, despite a few mixed economic data releases on the day. Both weekly jobless claims and pending home sales just barely missed analysts’ expectations; however, major equity indexes continued their march higher without much hesitation on speculation that the Fed would feel more compelled to maintain stimulus [see also The Cheapest ETF For Every Investment Objective].

Our ETF to watch for today is the PIMCO Canada Bond Index Fund (CAD, B+), which could receive a much needed fundamental catalyst to bolster its rebound after investors digest the latest Canada GDP report. Analysts are expecting for Canada’s economic growth rate to come in at 1.5%, which would mark a slight deterioration from the previous reading of 1.7%.

Chart Analysis

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Consider CAD’s two-year daily performance chart below. This bond ETF has been in a dismal downtrend since peaking at $108.90 a share in late September of last year; since then, CAD has posted consistently lower-highs (blue line) while also sinking below its 200-day moving average (yellow line) at the start of 2013. What’s noteworthy is that bargain buyers have clearly stepped in here, judging by the above-average volume seen on 5/30, as the ETF is resting on a major support level; notice how CAD is trading around $100 a share (red line), which is about the same level this fund first debuted at back in late 2011 [see 3 ETF Trading Tips You Are Missing].

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The upside in this ETF is by all means very attractive seeing as how traders can set a tight stop-loss underneath the recent lows while still favorably positioning themselves in anticipation of a swing higher. Longer-term conservative investors may wish to hold off, however, since CAD is still in a downtrend from a technical perspective [see 5 Important ETF Lessons In Pictures].

Outlook

If Canada’s GDP report surpasses expectations, CAD could be in for a tough session as investors are prompted to jump into riskier assets in lieu of bonds; in terms of downside, this ETF has major support around $100 a share, while a break lower could welcome accelerating selling pressures as stop-losses are triggered. On the other hand, worse-than-expected economic growth may inspire a rally for fixed income securities as many flee for safety; in terms of upside, this ETF could face stiff profit-taking pressures as it nears resistance around $104 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.

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