Infrastructure ETF's Bear Gap Puts Key Support to the Test

IGF ended last Friday just one penny below the crucial $45 level

by Bernie Schaeffer

Published on Dec 26, 2017 at 9:27 AM

Infrastructure stocks were expected to be a key beneficiary of the Trump administration's business-friendly agenda, and -- though the exchange-traded fund (ETF) features a broad international mix of companies, rather than a U.S.-focused lineup -- the price action in the iShares Global Infrastructure ETF (IGF) reflected this post-election optimism. From its pre-election close at $40.14, IGF went on to gain 14% over the next calendar year, and along the way set a new nine-year high of $46.75 on Sept. 11. Over the course of this 12-month stretch, the fund garnered $422.12 million in net inflows, per etf.com.

However, after a few months of choppy, sideways price action, IGF last week broke lower. The stock on Thursday gapped below its 126-day moving average (a trendline that roughly corresponds with half a year's worth of trading days), which had previously cushioned the fund's drawdowns in late October and late November. Additionally, IGF gave up the $45 level in the process, after this area previously marked a floor through the bulk of the second half of 2017.

IGF $45 is not a random price point, but a level that carries some real significance. Back in 2014, the ETF peaked just shy of here, at $44.87, before embarking on a lengthy slide into its January 2016 low around $32.50. Years prior, IGF had found support around $45 for a few months in early 2008, ahead of a steep sell-off that would culminate in a low of $20.52 in March 2009 (coincident with the broad market's bottom that same month). And meanwhile, for this final week of 2017, IGF's round 20% year-to-date return is located squarely at $44.90.

In short, it's quite possible that $45 could once again rear its head as resistance -- and the longer IGF stays below this level, the stronger this ceiling could grow. But there's another major technical level in play that could help the shares bounce back. IGF's low last week occurred around the site of its rising 200-day moving average. This trendline has previously acted as both support and resistance, and notably, in concert with the aforementioned 126-day counterpart, cushioned the fund's June 2016 Brexit-era lows (with its global focus, some of IGF's top holdings are Europe-based).

So far, the 200-day is holding up; after Thursday's test, the ETF edged cautiously higher on Friday, though it closed squarely at its intraday high of $44.99 -- so the shares are certainly not yet "out of the woods," with respect to the formidable $45 level. But another factor that could work in IGF's favor is continued investor affection for the group. Month-to-date, etf.com pegs December net inflows for the fund at $230.20 million, representing more than half the amount raked in during the 12-month post-election rally.

In the immediate days and weeks ahead, a successful bounce from chart support could further enamor IGF bulls, resulting in more than enough fuel to power the fund past $45. If so, traders will want to monitor the ensuing progress around the 126-day moving average (currently just north of $45.50), as this recently stalwart layer of support is also at risk of switching roles to act as resistance.

IGF 126-day and 200-day moving averages


Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, December 24.

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