Friday’s ETF Chart To Watch: Industrial Select Sector SPDR (XLI)

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The bears continued their parade on Wall Street as selling pressures reigned supreme for yet another trading session, further sinking major equity benchmarks into red territory. With looming eurozone debt drama and “fiscal cliff” worries at hand, many have been left wondering if this is merely another nasty correction, or potentially the beginning of a major downtrend. On the homefront, markets also digested lackluster earnings results from industry giant Wal-Mart, adding to the laundry list of uncertainties plaguing investors’ confidence [see Free 7 Simple & Cheap All-ETF Portfolios].

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With no major economic data releases taking place overseas, our ETF to watch for the day is the State Street Industrial Select Sector SPDR (XLI, A+), which may experience volatile trading as American industrial production data hits the street after the opening bell. Analysts are expecting October’s industrial production figure to grow by 0.2%, marking a slight deterioration from the previous reading of 0.4% [see also A Week Later, ETF Winners And Losers From The Election]. 

Chart Analysis

XLI is currently trading in dangerous territory as this ETF recently broke below support, sinking below its 200-day moving average (yellow line). Recent price action has been quite bearish for this ETF, perhaps suggesting that prospective buyers are still waiting on the sidelines for a more attractive entry point. Since failing to summit $38 a share in mid-September of this year, XLI has sunk below the lower-support line of its upward trading channel (blue lines), ending the most recent uptrend, at least for now [see 3 ETF Trading Tips You Are Missing].

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While XLI may bounce higher over the coming days, we advise conservative investors to wait for this ETF to regain its footing above the 200-day moving average before jumping in long [see 101 ETF Lessons Every Financial Advisor Should Learn].

Outlook

A bearish industrial production report may invite further selling pressures for this ETF; in terms of downside, XLI has support around $35 a share followed by the $34 level. On the other hand, surprisingly upbeat data may inspire a broad-based rally; in terms of upside, this ETF has resistance around $36.50 a share followed by the $37.50 level. 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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