SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) follows the Dow Jones Industrial Average Index and while DIA is often overshadowed by other broad market exchange traded funds, the ETF is worth keeping an eye on in the near-term as the blue-chip index with multi-decade technical support.
In the third quarter, DIA and the Dow were punished by 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.
Recent equity market declines could have a silver lining. Some of the largest stocks and mega-cap exchange traded funds have been ignored and are now trading at relatively cheap valuations. DIA trades at a lower multiple than S&P 500 ETFs.
Still, DIA could use the benefit of returning risk appetite due to its heavy exposure to cyclical sectors. 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.
“As you can see the Dow has spent a good number of years inside of this rising channel. It broke above the channel in the late 1990’s and become support at the 2002-2003 lows. In the 2007-2008 time frame, once support broke, the Dow fell hard for a few months. Now the Dow is testing 70-year channel support this morning. Carl Icahn has expressed concerns that the stock market could fall a large percentage. Support is support until broken and the Dow right now it hitting one heck of a support line. Should this support fail to hold, the little boys comments above, say it all,” notes Chris Kimble of Kimble Charting Solutions.
Dow Jones Industrial Average
Chart Courtesy: Kimble Charting Solutions