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XLI In New Uptrend

08/03/10 12:14:26 PM
by Chaitali Mohile

The breakout of XLI is likely to initiate a fresh bullish trend.

Security:   XLI
Position:   Buy

Recently, the Industrial Select SPDR (XLI) broke upward from a falling wedge -- a bullish reversal pattern. The breakout had a robust bullish strength as price breached the converging 50-day and 200-day moving average (MA) resistance as well. This breakout was a real trend reversal for XLI. The relative strength index (RSI) (14) that was stuck between the 50 and 30 levels slipped into the bullish region, indicating a developing strength in rally. The volatile moving average convergence/divergence (MACD) (12,26,9) turned positive and shifted in positive territory above the zero line. Thus, the bullish rally began on fresh positive momentum.

FIGURE 1: XLI, DAILY. The series of lower highs and lower lows formed the falling wedge. Since the trading range was very wide, the pattern broke upward before the maturity.
Graphic provided by: StockCharts.com.
 
Most important, the buying pressure indicated by the positive directional index (+DI) (green line) of the average directional index (ADX) (14) moved north, dragging the trend in favor of the bulls. Although the ADX (14) has just touched 20 levels, the increased buying pressure would definitely pull the indicator higher. The three white candles in the price chart of Figure 1 show the three white soldiers' candlestick formation, confirming the trend reversal possibility. The following red candle and the doji would not harm the robust rally as all the three indicators are bullish, but we could see a consolidation ahead. Therefore, traders can remain long in XLI with the stop-loss at $29.5.

FIGURE 2: XLI, WEEKLY. The index would soon establish support on the 200-day MA.
Graphic provided by: StockCharts.com.
 
The medium-term chart in Figure 2 also shows healthy picture of XLI. The index is ready to convert the 200-day MA resistance to support and has the strong support of the 50-day MA. For the last few weeks, the sector index was stuck between the two MAs. But you do see signs of a MA breakout which is supported by the positive momentum reflected by the MACD (12,26,9). The RSI (14) has surged above 50 levels, suggesting a fresh buying opportunity for traders and also indicating bullish strength in the rally.

Thus, XLI is ready to enter the new bullish trend and open a fresh buy-set for short-term and long-term traders.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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