Stocks finally stumbled and major equity indexes sank into red territory after enjoying a solid six day “green streak”. The main culprit behind Thursday’s sell-off was the looming standoff between politicians at home. As “fiscal cliff” woes found their way into the headlines, bearish sentiment permeated Wall Street; in fact, profit taking pressures overshadowed better-than-expected weekly jobless claims data and positive November retail sales results [see 101 High Yielding ETFs For Every Dividend Investor].
Stock diagram on the screen
Over the last month XLI has managed to rise back over its 200-day moving average (yellow line) after enduring a prolonged and choppy correction since recently peaking at $38.07 a share on 9/14/2012. XLI’s rebound is quite bullish considering that it has managed to climb higher along a steeply rising support line since bottoming out above $35 a share in mid-November. Despite its positive price action in recent sessions, entering into a long position at current levels is not recommended seeing as how XLI previously failed to summit the $38 level (red line) on 3/15 and later again on 9/14/2012 [see ETF Technical Trading FAQ].
We advise conservative investors who are eager to jump into a long position to wait and observe XLI as it establishes support above the $38 level before pulling the buy trigger [see The 5 Most Important Chart Patterns For ETF Traders].Outlook
If the upcoming industrial production data is surprisingly positive, it may be the fundamental boost needed to propel XLI past resistance at the $38 level. On the other hand, if history repeats itself from a technical perspective, this ETF could be in for a sour reversal; in terms of downside, XLI has major support around $36 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.