Profit taking pressures found their way onto The Street yesterday, as many locked-in profits following the S&P 500′s run-up since the start of September. Not surprisingly, investors on the sidelines remain hesitant to jump in ahead of next week’s Fed meeting and due to the looming uncertainties surrounding developments in Syria [see Picture Edition: Major Asset Class Returns From The 2009 Bottom].
Our chart to watch for the day is the State Street SPDR S&P Retail ETF (XRT, A), which could experience volatile trading as investors digest the latest retail sales report. Analysts are expecting for the August sales figure to post a 0.5% increase over the previous month, which saw an improvement of 0.2%.Chart Analysis
Consider XRT’s one-year daily performance chart below. This ETF has been climbing higher within a fairly well-defined trading channel since bottoming out right below $60 a share in mid-November of last year; since then, XRT has managed to rebound off its lower support boundary. Likewise, XRT has predictably endured corrections whenever it has grinded along or deviated above its upper resistance boundary for an extended period of time. Notice how its last two pullbacks in late June and August of this year were steeper than the rest; this is likely because its previous rebounds extended far above its historic price channel [see Visual Edition: The Original Businesses Of Dow Components].
Seeing as how XRT is currently trading somewhere in the middle of its longer-term channel, we advise conservative investors to hold off from jumping in either long or short, given the possibility of a breakout in either direction [see 3 Market Valuation Indicators ETF Investors Must Know].Outlook
If the latest retail sales data comes in better-than-expected, XRT should continue towards the top of its channel; in terms of upside, this ETF has upcoming resistance around $82 a share. On the other hand, lackluster sales data can bring out the bears and inspire profit taking; in terms of downside, this ETF has upcoming support at $78 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.