ETF Ranking and Grouping – Breakouts Hold as Participation Broadens

After a dip in June, stocks and ETFs bounced back in July with several breakouts occurring over the last few weeks. In addition, groups that were lagging from April to June are leading over the last two weeks. It is positive to see some of these laggards play catch up and it is also positive to see the advance broadening. In particular, we have breakouts in small-caps (IWM), industrials (XLI), metals (XME), housing (ITB) and retail (XRT). These groups are economically sensitive and their breakouts bode well, as long as they hold. Today’s report will focus on these breakouts and set the key levels to watch going forward.

We saw some breakouts and pretty big moves in several ETFs over the last two to four weeks. SLV, ITB, IHI, IBB, XRT, XME and XLV are up sharply in a short period of time. Part 5 in the strategy series using StochClose suggested profit targets based on ATR(125) (six times the ATR value). The challenge now is that volatility in February-March pushed ATR values significantly higher and hitting an ATR-based profit target is less likely when too far away. This is a time when a little discretion may come in handy. For example, a 6% profit in XLV or 10% profit in XBI pretty reasonable. At the very least, traders may consider taking some money off the table to lock in some gains as we head into August.

Plotting the Leaders and Laggards

The image below shows the top 26 ETFs and the ETFs with StochClose (125,5) values above 90. This means they are very close to six month highs. A score of 100 indicates a six month high. Note that StockCharts users can chart Full Stochastic (125,5,1) as an alternative. ETFs related to bonds, healthcare, precious metals, technology and consumer discretionary feature in this leading group. Of note, the Home Construction ETF (ITB), Retail SPDR (XRT) and Homebuilders ETF (XHB)  have StochClose values above 90 and show strength. StochClose also surged for these three over the last five days.

The next image shows a scatter plot with StochClose (125,5) on the y-axis and RSI(14) on the x-axis. There is a big cluster above 90. We also have some strengthening in small-caps (IWM), mid-caps (MDY) and equal-weights (RSP) as StochClose improved. This shows a broadening in the current advance and this is why the breadth indicators improved. Of special note, StochClose for the Metals & Mining SPDR (XME) surged above 60 this week. Note that XME was featured on July 13th with a bounce off support and short-term breakout.

S&P 500 Breadth Model Turns Bullish

This is just a quick note and chart to let you know that the S&P 500 breadth model turned bullish on Monday. S&P 500 High-Low% tipped the balance as the indicator exceeded +10% for the first time since late February. Add active bullish signals from the 10-day EMA of Advance-Decline Percent and the %Above 100-day SMA, and three of the five indicators are bullish. The %Above 150-day SMA and %Above 200-day SMA remain with bearish signals. You can learn more about these indicators and the model in this article/video.

Underperformers Continue to Play Catch Up

ETFs that were lagging in June are playing catch up over the last two weeks and outperforming the tech-related ETFs. The chart below shows the Regional Bank ETF (KRE), Metals & Mining SPDR (XME), Industrials SPDR (XLI), Finance SPDR (XLF) and Russell 2000 ETF (IWM) with bigger gains than the Technology SPDR (XLK), Nasdaq 100 ETF (QQQ), Semiconductor ETF (SOXX) and Cloud Computing ETF (SKYY) over the last ten trading days. This rotation is positive because is shows that participation is broadening.

52-week Highs


The Gold SPDR (GLD) surged, the Gold Miners ETF (GDX) moved to another new high and the Silver ETF (SLV) went ballistic. These moves simply affirm existing uptrends and build on prior breakouts. GLD and GDX broke out of consolidations on June 22nd and SLV followed a week later. Even though rising prices are bullish, the rate of ascent is concerning. A sharp surge off a low or after a basing process is bullish, but a sharp surge after an advance could signal a blowoff top.  I am not looking for a long-term top here and predicting a top when something goes parabolic is a fool’s errand. Nevertheless, SLV is looking the most dangerous of the three.

The next chart shows weekly prices and GLD clearly has the most consistent uptrend of the three. GDX plunged along with SLV in March, but recovered quicker and hit a new high in April. SLV broke out of a massive base last week and surged over 15% the last three days. The ETF is up over 90% from its March low. Even though this is a big base breakout, a 20% surge after a 65% advance is concerning.

The next chart shows the Solar Energy ETF (TAN) and Robotics & Artificial Intelligence ETF (BOTZ) hitting new highs with massive moves the last few months. 61% of stocks in BOTZ are outside the US (43% in Japan) and 32% of stocks in TAN are outside the US. These two may be benefiting from a weak Dollar. Note that I would not start looking for weak Dollar trades. I think analyzing the Dollar is largely a waste of time and instead prefer to focus on the individual charts. BOTZ has a breakout and new high. TAN is up over 30% since late June and getting quite extended, as it was in late February.

And now for a fairly normal breakout. The Healthcare SPDR (XLV) moved above the 200-day in mid April, consolidated above this moving average and broke out with a 10% gain the last 18 days. The breakout was anticipated as RSI firmed in the 40-50 zone and StochRSI surged above .80 on June 30th. The second chart shows the Medical Devices ETF (IHI) with similar characteristics.

Consolidation Breakout and New High


The next group of ETFs broke out of consolidation patterns and hit new highs this week. The Biotech ETF (IBB) and Biotech SPDR (XBI) were the first to break out in mid June, and the rest followed. The first chart shows XBI with RSI firming in the 40-50 zone as XBI tested support in mid June. StochRSI popped on June 18th and XBI broke out on June 19th.

The next chart shows the Semiconductor ETF (SOXX), Cyber Security ETF (HACK)  and FinTech ETF (FINX) taking the lead in the tech sector with new highs this week. All three broke out of consolidation patterns in late June or early July.

The next chart shows the Retail SPDR (XRT) with the RSI/StochRSI setup in late June and a consolidation breakout on July 1st. XRT followed through on this breakout with a new high on Wednesday.

Near 52-week High


The next group contains the previous leaders (tech-related). These ETFs are not exactly lagging right now and they are certainly still in uptrends, but the ETFs mention earlier have slightly stronger charts. QQQ hit a new high on July 13th, dipped and then surged back to this high. It did not record a new high this week and is slightly lagging ETFs that did record new highs. The 13-July bearish engulfing was not successful and this extends the streak of unsuccessful bearish candlestick patterns. While picking a top after a big move is tempting, it is generally a good idea to ignore bearish candlestick patterns when above the rising 200-day because the bigger uptrend carries more weight.

The indicator windows show ATR(22) and the Nasdaq 100 Volatility Index ($VXN) moving in lockstep. VXN was below 25 in late February and surged above 80 in mid March. This volatility measure fell back as QQQ advanced, but remains above pre-covid levels. It has recently leveled off in the 30-40 area. Even though it is still at relatively high levels, I would not consider it as a negative influence unless we see an upside breakout (above 40). The rest of the tech-related ETFs will likely follow QQQ’s lead.

Consolidation Breakout and Exceeded June High


The next group of ETFs broke out of consolidation patterns and exceeded their June highs (higher highs). However, they remain below their February highs and have yet to record new highs. As the symbols show, this is a diverse group and there is no apparent theme. The first chart shows the Mobile Payments ETF (IPAY) with a breakout on July 6th and a little throwback on July 13th. IPAY held above support and the 200-day, and then continued higher the last six days.

The next chart shows the Home Construction ETF (ITB) consolidating above the 200-day SMA and breaking out on July 8th. Notice that this breakout was preceded by an RSI dip into the 40-50 zone.

I put the 20+ Yr Treasury Bond ETF (TLT) in this group because its breakout is still working and it exceeded its June high, but has yet to clear the prior highs. TLT is also well above the rising 200-day SMA. It seems that something needs to give here: either TLT turns down and money rotates out of bonds (into stocks) or stocks turn down and money moves into bonds. For now, both TLT and SPY have bullish breakouts working and I will continue to focus on the individual charts for clues.

Consolidation Breakout and below June High


The next group of ETFs broke out of consolidations, but remain below their June highs. Many of these also had Bollinger Band squeezes prior to their breakouts. The first chart shows RSP finding support in the 98-100 area as the Bollinger Bands narrowed. RSP broke out on July 15th and is currently “walking the band”. This is a term John Bollinger used to describe when price advances and “tags” the upper band on a regular basis. We can see price walking down the lower band in late February and March, and walking up the upper band from mid April to early June.

The breakout in RSP is bullish until proven otherwise and I am watching two levels. First, a close below the 20-day SMA (middle band) would fill the 15-July gap and negate the initial breakout. Second, a close below the June lows would break support and clearly reverse the uptrend that has been in place since late March. The next chart shows IWM with similar characteristics.

The next chart shows the Industrials SPDR (XLI) with a squeeze and breakout in play.

The next chart shows the High-Yield Bond ETF (HYG) breaking out of a falling flag in mid July and moving above the upper Bollinger Band this week. HYG also closed above the 200-day SMA. This breakout is bullish until proven otherwise as well. The advance in junk bonds means yield spreads narrowed further this week and this is positive for stocks.

Near 200-day and Short-term Breakout


The Metals & Mining SPDR (XME) came to life the last two weeks with a double-digit bounce off support. This started with an RSI dip into the 40-50 zone and StochRSI pop above .80, as well as a short-term resistance break. XME is now challenging its falling 200-day SMA.

Below 200-day and Short-term Breakout


The next group of ETFs are lagging overall and looking vulnerable, but they have higher lows from May to July and short-term breakouts working. The first chart shows the Finance SPDR (XLF) failing at its 200-day SMA in early June and falling back to the 23 area. The ETF firmed for two weeks and broke short-term resistance with a little pop last week. This breakout is holding, but follow through has not been inspiring. A move back below 23 would negate the breakout and call for a re-evaluation. The second chart shows KRE with similar characteristics.

Below 200-day and Consolidating


SPY is up over 3% the last ten trading days, but the Real Estate SPDR (XLRE) is barely positive (-.11%) and the REIT ETF (IYR) is down (-1.6%). These two are lagging over the last few weeks and below their falling 200-day SMAs. IYR could be setting up as RSI bounces in the 40-50 zone and StochRSI surges above .80, but the bigger trend is down and this is the dominant force at work.

Well Below Falling 200-day and Wedge Breakouts


ETFs in the final group are in clear downtrends, but trying to turn up short-term. This is not a preferred setup because these ETFs are lagging and these downtrends are the dominant force at work. The chart shows the Energy SPDR (XLE) exceeding its May low with a falling wedge. Price broke above the upper line and even exceeded short-term resistance on Tuesday. Nevertheless, energy is by far the weakest sector and there are better setups out there.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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