In Early April we posted on the industrial and transport sector, and with a slew of reports coming in late April we took a look specifically at the bad technicals in the industrial sector etf XLI. Here’s what we said at the time, from April 13th:
From a technical perspective, the downtrend is pretty clear, with bounce potential to the trend near $77.50, while a break of the February and March lows near $72 would put support at the Sept breakout level near $72
We then detailed a defined risk short into earnings season, expiring in May:
XLI ($74.30) Buy May 74 / 69 put spread for $1
-Buy to open 1 May 74 put for 1.40
-Sell to open 1 May 69 put at 40 cents
At the time, XLI was 74.30 and today it has broken below that 72 support level we identified. With XLI now 71.60 the May 74/69 put spread is worth about 2.20.
As far as trade management we have this one right where we want it and will look for further downside before closing. XLI was below 71 mid day today. From here on out, we want to keep an eye on the 72 level, as support could now become resistance. If the etf fails to get back above 72 it could work its way towards the next level of support near 70. The breakeven on this trade is obviously 73, so we have some room on the upside but 72 is really the spot we want to watch. As long as the etf is below that level the trade will be worth at least a double. On the downside we can be patient as we have up to a 4 to 1 profit potential versus the initial risk.
We’ll update again closer to expiration or if the etf bounces enough to put profits at risk.