The SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA), the tracking ETF for the Dow Jones Industrial Average, has made impressive gains in recent weeks, soaring 4.4% over the past month.
DIA’s recent bullishness could go a long way toward improving the fund’s still sensitive technical situation. In the third quarter, DIA and the Dow were punished by a spate of poor earnings, notably from declining Technology shares like International Business Machines (NYSE: IBM), Apple (NasadaqGS: AAPL) Walt Disney (NYSE: DIS) and Microsoft (NasdaqGS: MSFT), just to name a few.
More aggressive traders who believe in a rebound on the low levels can utilize leveraged ETF options to capture a potential bounce. For instance, the ProShares Ultra Dow30 (NYSEArca: DDM) takes the 2x or 200% daily performance of the Dow, and the ProShares UltraPro Dow30 (NYSEArca: UDOW) takes the 3x or 300% daily performance of the Dow.
Additionally, investors may utilize the mega-cap ETFs to better control a stock portfolio’s market exposure or for short-term tactical plays. While mega-caps may show slower growth, the asset category also come with lower volatility.
“The Dow remains inside of a 5-year rising channel,” according to Chris Kimble of Kimble Charting Solutions. “The 10% decline in the Dow this summer, took it down to test rising channel support at, which held the last week of August. Since hitting channel support, the Dow has rallied for the past 7-weeks.”
The technology, industrial and materials companies are among cyclical sectors that typically strengthen in a rising rate environment as investors turn away from safer assets and shift into riskier areas of the market. However, those sectors, particularly industrials and materials, have lagged this year as the Fed has yet to raise rates. That could be a sign though that as rate hike speculation rises again, DIA could be primed for some upside as investors embrace cyclical sectors.
“The Dow closed last week at its 61% Fibonacci retracement level and at the same time it is kissing the underside of a 3-year old resistance at,” adds Kimble. “In my humble opinion, a key test of dual support-term resistance is in play today and it would not be that great of a place, for the Dow to run out of gas.”
Dow Jones Industrial Average
Chart Courtesy: Kimble Charting Solutions
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.