Dow ETFs in Precarious Technical Positions

With U.S. equity markets sliding to start 2016, it is not surprising that some widely followed broader market exchange traded funds are feeling the effects of investors ditching stocks in favor of safer pastures.

The SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA), the tracking exchange traded fund for the Dow Jones Industrial Average, is an example of that theme as the Dow has closed lower in five of 2016’s eight trading sessions, often incurring steep triple-digit losses. Dow components are weighed by price, meaning the stock with the biggest price tag accounts for the largest chunk of the index. That methodology has been frequently criticized. [Apple is Coming to the Dow ETF]

However, the Dow’s near-term issues are technical as the charts indicate.

“The Dow has made numerous important highs and lows along rising channel over the past 70-years. The last two times channel line was really important was at the 2002/03 lows and right before the big decline around the world in 2008,” said Chris Kimble of Kimble Charting Solutions. “The Dow hit channel back in 2008 and once support gave way, the Dow proceeded to decline 40% in a matter of months. The small decline over the past 7-months has the Dow testing rising channel. At this time the channel comes into play as a test of support.”

The new Guggenheim Dow Jones Industrial Average Dividend ETF (NYSEArca: DJD) is also likely to be vulnerable to a pullback by the Dow. DJD, which debuted last month, weighs the 30 Dow stocks by yield, which works because all 30 current members are dividend payers.