Video and Report Headlines
- Leading ETFs: QQQ, DIA, SOXX, ITB, PPA …
- First Support to Watch on a Pullback
- XLK Leads the Sectors and XLC Holds Breakout
- Semis Lead Tech-Related ETFs (plus IGV and CIBR)
- Home Construction ETF Goes on a 45% Tear
- Fintech and ARK Innovation Form Large Basing Patterns
- Energy ETFs Firms in Support-Reversal Zones
- Gold Challenges 2020 High – Again
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Even though the market advance broadened over the last few weeks, most ETFs are still well below their 2021 highs. In other words, they have yet to fully recover from January to October in 2022. Stocks and ETFs that exceeded their 2021 highs are truly leading.
QQQ and DIA are the only major index ETFs that exceeded their 2021 highs in December. SPY is very close. Technology SPDR (XLK) and Industrials SPDR (XLI) are the only two sector SPDRs. Among the tech-related ETFs, the Semiconductor ETF (SMH) and Semiconductor ETF (SOXX) are the only two.
Elsewhere, the Home Construction ETF (ITB), Homebuilders ETF (XHB), Aerospace & Defense ETF (PPA), Aerospace & Defense ETF (ITA), MLP ETF (AMLP), Steel ETF (SLX) and Gold SPDR (GLD) notched new all time highs. These are the leading ETFs and groups.
Of those that did not exceed their 2021 highs, honorable mention goes to the S&P 500 SPDR (SPY) because it is very close. Elsewhere, I see leadership in the Software ETF (IGV), Cybersecurity ETF (CIBR), Nasdaq Smartphone ETF (NXTG), Communication Services SPDR (XLC) and Uranium ETF (URA).
Identifying First Support to Watch on a Pullback
Today we will take a step back and look at some weekly bar charts that extend back to March 2020. Stocks are short-term overbought and ripe for a pullback or a consolidation, but timing a pullback is more challenging. Many stocks and ETFs are simply too extended to warrant new buying. It would be more prudent to exercise some patience and wait for the pullback.
The first chart shows SPY with a 20.5% advance into summer and a falling channel decline into late October. SPY broke out with a surge in early November and extended above the summer highs with a 16.5% surge. The blue shadings mark support levels to watch should we get a pullback. Broken resistance and the 33% retracement mark first support in the 455-460 area. The channel breakout and 50-67 percent retracement zone mark next support in the 430-440 area.
The next chart shows QQQ with a channel breakout in early November and a 20% surge to new all time highs. The prior resistance levels turn into first supports. These broken resistance levels align with the 33-50% retracement zone to create a support-reversal zone in the 375-390 area. A pullback to this area would provide a second chance to partake in the uptrend.
XLK Leads the Sectors and XLC Holds Breakout
The Technology SPDR (XLK) is the leading sector as it tagged a new all time high this month. The breakout zone and 33-50 percent retracement zone mark the first support-reversal zone to watch going forward.
The next chart shows the Communication Services SPDR (XLC) with a falling channel pullback into October and a breakout in mid November. The breakout is bullish and holding. The prior move was +50% and another 50% advance would put XLC back near the 2021 highs. I used the measured move technique for this projection. The breakout zone and the 50% retracement mark first support in the 67-69 area. Watch this support-reversal zone if we get a pullback.
Semis Lead Tech-Related ETFs (plus IGV and CIBR)
The next chart shows the Semiconductor ETF (SOXX) with a falling wedge that retraced around 1/3 of the 85% advance. The ETF broke out in mid November and extended to a new all time high here in December. As with most of the market, SOXX is quite extended after a 33% advance. Broken resistance and the 33% retracement mark the first support zone to watch should we see a pullback (blue shading).
The next chart shows the Cybersecurity ETF (CIBR) with a triangle breakout in mid November and a 25% surge. The breakout is bullish and the trend is up, but CIBR is quite extended. There are three retracements to watch with 50% marking the base-case (33, 50 and 67 percent). If and when we get a pullback, the 49 area is the first place to watch for support. Notice how the 50% level marked support after the 41% surge at the end of 2020. We are perhaps in a similar situation with this yearend surge. Notice that CIBR did not pullback until mid February 2021 (red arrow).
The next chart shows the Software ETF (IGV) with a support-reversal zone in the 363-367 area.
Home Construction ETF Goes on a 45% Tear
The next chart shows the Home Construction ETF (ITB) with a 45% surge from late October to mid December. It is nice to see housing lead, but 45% in seven weeks is a bit extreme. This move could extend further and even reach the upper line of a massive channel. ITB is very overbought and ripe for a rest or pullback. The breakout zone and 50% retracement combine to mark first support in the 87-90 area (blue shading).
Chart Analysis, Setups and Trading Ideas
Fintech and ARK Innovation Form Large Basing Patterns
The FinTech ETF (FINX) and the ARK Innovation ETF (ARKK) are basing after big round trips. Both led the market higher from April to December 2021 with triple digit surges. They then led the market lower with massive declines that reached the March 2020 lows. Both recorded 52-week lows toward the end of 2022 and then embarked on a basing process. The first chart shows FINX trading in the 18-24 area since October 2022. FINX surged some 41% the last eight weeks and is attempting to break out. Despite a 41% gain, the ETF would need to double from current levels to get back to its 2021 highs. While I view the basing process as bullish, this is a very volatile ETF and I would prefer to wait for a pullback. The strategy here is to let the breakout move go. There will be a pullback at some point and this will offer a better setup for partaking in a new uptrend.
The next chart shows ARKK with a 58% surge to the resistance zone. ARKK shows a big base and a breakout here would be bullish. Again, I am willing to let the first move go and wait for the pullback.
Energy ETFs Firm in Support-Reversal Zones
The Energy SPDR (XLE) and Oil & Gas Equipment & Services ETF (XES) did not partake in the broad market advance the last nine weeks. Nevertheless, both are in long-term uptrends and firming in support-reversal zones. The first chart shows XLE with a large Ascending Triangle taking shape. This is a bullish continuation pattern and a break above the summer high would confirm the pattern. The swing within the pattern is down as a falling wedge formed. XLE is finding support near the 67% retracement and broken resistance. This is a support-reversal zone. A breakout at 86 would reverse this downswing and increase the odds for a bigger breakout.
The next chart shows XES with a very choppy uptrend since the breakout in late 2020. XES hit a new high in mid September and then fell the last 14 weeks. Overall, the decline retraced around 67% of the prior 51% advance. It also returned to the breakout zone, which turns support. The falling wedge defines this downswing with resistance marked at 86. A breakout here would be bullish.
Gold Challenges 2020 High - Again
The Gold SPDR (GLD) sports one messy chart. Overall, GLD has gone nowhere since it first breached the 190 level in summer 2020. GLD surged 42% from the March 2020 low to the summer high and then retraced around 67% with a decline into March 2021. The ETF seemed to break out, but trading turned choppy before prices plunged into October 2022. GLD then surged some 27% and met resistance from the prior highs. Most recently, GLD retraced 50% of the 27% advance with a falling channel and broke out with a surge at the end of October. This breakout is bullish and holding. I would mark support at mid November low (179).
