An early rally in exchange traded funds that track the industrial sector fizzled Monday after a manufacturing index came in much weaker than expected.
The ETFs bounced at Monday’s open on enthusiasm over the U.S. debt deal after selling off hard last week. However, it fell into the red after the Institute for Supply Management said its manufacturing index fell to 50.9 in July from 55.3 the previous month. Economists were looking for a reading of 54.9, according to Reuters.
“Carnage best describes the Industrial Select Sector SPDR Fund (NYSEArca: XLI) as it seemingly collapses though both the 200-day exponential moving average and also the neckline of a potential top formation,” said Tarquin Coe, technical analyst at Investors Intelligence.
“However, on the longer term chart a rising channel is evident and that is a greater force than the weight of the possible medium-term top,” he wrote in a newsletter. “The pattern has built up since the start of the year and given the primary uptrend its form is more of a bullish consolidation than a top. Conditions are oversold, with the 14-day RSI (Relative Strength Index), hitting a low which has typically preceded a reassertion of the general uptrend.”
The industrial ETF has a dividend yield of 2.21%, according to manager State Street Global Advisors.