SOXX Follows Overbought Extreme with Outsized Decline

Last weekend’s post showed the Semiconductor ETF (SOXX) with a 10 day overbought streak and several ETFs with even bigger overbought streaks. These streaks came to an end this week as SOXX fell 6.21%, its biggest weekly decline since mid March. As measured by Normalized ROC, this is an outsized decline that argues for at least a corrective period over the next few weeks.

Normalized ROC is part of the TIP Indicator Edge Plugin for StockCharts ACP. This indicator is the absolute price change divided by the Average True Range (ATR). In this example, I am using the 5-day price change (-25.93) and dividing by 250-day ATR (6.69). -25.93 divided by 6.69 is 3.88. This means the 5-day decline was 3.88 ATR(250) values, or almost a 4 ATR decline, which is quite large. An advance or decline that exceeds 3 ATR values is considered an outsized move.

An outsized move signals a sudden and dramatic shift, but also presents traders with a double-edged sword. Short-term (one week), the outsized decline creates an oversold condition that could give way to a bounce. Medium-term (one month), the outsized decline shows abnormal selling pressure that could lead to further weakness or a corrective period. The chart below shows initial outsized moves in green (up) and red (down). An outsized advance in early November kicked off a surge to new highs and the outsized decline here in late January could signal the beginning of a correction. Look for an outsized advance to counter this latest signal.

Note that outsized moves are just one piece of the puzzle. Chartists need to consider other pieces and that’s just what we do at TrendInvestorPro. Many ETFs are short-term oversold and the turn of the month has a strong bullish bias, which has been quantified. Medium-term, we saw some bearish breadth thrusts, RSI end its overbought streak and almost 50 outsized declines this week. Subscribe now for immediate access to our Market Timing Report, ETF Trends & Patterns Reports and Comprehensive Weekend Video.  

SOXX and other ETFs with Extended Overbought Conditions

The Semiconductor ETF (SOXX) and several other ETFs are on a serious roll in 2021. For the fourth time since 2009, 14-day RSI was above 70 for ten or more days. This is an exceptional streak, but SOXX is not alone and there are even longer streaks. The following list shows some ETFs and the number of days RSI has been above 70: ROBO (39), DRIV (25), ARKQ (13), EWT (13), MOO (12), XRT (11), SOXX (10), YOLO (10). Note that these numbers are based on Thursday’s close.

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A Top or a Mere Correction?

Visual chart analysis is prone to subjectivity and biases. While we cannot completely remove subjectivity, we can approach chart analysis in a systematic fashion and increase objectivity. This commentary will show an example using the Home Construction ETF (ITB) because the ETF has traded flat since mid October. Is this a top or merely a correction?

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Volatility Contraction in QQQ could Foreshadow an Expansion

The weekly high-low range for the Nasdaq 100 ETF (QQQ) was the narrowest of the year this past week and the ETF is battling triangle resistance. A narrowing range shows indecision and a volatility contraction. Even though this is just one weekly bar, QQQ is at a moment of truth. Will we see a triangle breakout and continuation higher or a failure at resistance and extended correction?

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Two ETFs with Market Leading Charts and Fast Growing Industries

New highs and a fast growing industry group make for a powerful combination. Today’s article will focus on two ETFs that capture two fast growing industries, video gaming and esports. We will show why these two ETFs are leading, why a consolidation within an uptrend is bullish and why a 50-day SMA is better suited for mean-reversion trading.

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The Setup to Anticipate the Breakout – XME Example

Chartists are often faced with a choice: wait for the breakout or anticipate using a mean-reversion setup. The Metals & Mining SPDR (XME) broke out of a bullish consolidation this week and the breakout signals a continuation of its long-term uptrend. Chartists keying off the mean-reversion setup could have anticipated the breakout and gotten the early jump. Let’s investigate.

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Silver Crosses Turn Dull

There are fewer silver crosses in the major stock indexes and this shows less participation during the last leg higher. A silver cross occurs when the 20-day EMA crosses above the 50-day EMA. DecisionPoint took this concept on step further and developed breadth indicators based on the percentage of stocks with silver crosses. This is a great way to look under the hood and aggregate medium-term trend performance for each index. The chart below shows this indicator for four key indexes: $NDX, $SPX, $MID and $SML. I set the bullish and bearish thresholds at

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Trend Composite Turns Fully Bullish for Verizon

Verizon (VZ) participated in the first leg up from late March to mid April, but then stumbled with a decline into mid June. This stumble, however, looks like a classic correction and the stock broke out with a strong move over the last six weeks. In addition, the TIP Trend Composite, which aggregates five trend-following indicators turned positive in early August. Let’s investigate further.

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Four Stocks Poised to Drive Healthcare Higher

The Healthcare SPDR (XLV) is one of the strongest sectors in 2020. Even though it does not sport the biggest gain, XLV recorded a new high in July and some 80% of its components are above their 200-day EMAs. The new high points to a long-term uptrend and upside leadership, while the percentage of stocks above the 200-day EMA points to broad strength within the sector. Sector SPDRs, however, are only as strong as the sum of their parts (component stocks).

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A Bollinger Band Breakout or the Dreaded Head Fake?

There were a number of Bollinger Band squeeze plays over the last two weeks and also a number of breakouts. These breakouts are bullish until proven otherwise, but chartists should also be aware of the head fake. In his book, Bollinger on Bollinger Bands, here’s how John Bollinger puts it: Traders beware! There is a trick to The Squeeze, an odd turning of the wheel that you need to be aware of, the head fake.

A Bollinger Band Breakout or the Dreaded Head Fake? Read More »

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