Thursday's ETF Chart To Watch: Industrial Select Sector SPDR (XLI)

Domestic stocks resumed trading yesterday following aprolongedweekend for the New York Stock Exchange, which was closed on Monday and Tuesday as a result of Hurricane Sandy sweeping over the east coast. On the bright side, trading activity resumed on Wall Street without volatile price swings at the opening bell like many wereanticipating. Looking back at economic reports released earlier in the week, investors finally digested better-than-expected consumer spending data,althoughmajor equity indexes ultimately ended the session flat.

With ISM data expected to hit the street later today, our ETF to watch is the State Street Industrial Select Sector SPDR as it may experience volatile trading. Analysts are expecting the latest ISM reading to come in at 50.5, marking a minimal decline from the previous reading of 51.5.

Chart Analysis

Despite its recent dip below the 200-day moving average (yellow line), DIA appears to be on its way toresumingits longer-term uptrend. Notice how since bottoming out in early June of this year this ETF has managed to advance higher within a roughly defined, upward-sloping trading channel (blue lines). Entering into a long position at current levels is attractive seeing as XLI is trading near the bottom-half of its range; this allows traders to tap into attractive upside potential while at the same time keeping a close eye on downside risk.

Click to Enlarge Another piece of bullish evidence is the fact that XLI is holding support at the $36 level, which it previously tested in early September of this year as well.

Outlook

If ISM data paints an optimistic outlook for the domestic recovery, U.S. markets may enjoy a rally on the day; in terms of upside, DIA has resistance around the $37.50 level. On the flip side, adisappointingrelease may welcome further profit-taking on Wall Street; in terms of downside, this ETF has major support around the $36 level.As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.