ETF Trends, Patterns and Setups – Techs Extend and Lead, Banks and Energy Stall, Gold Hits Resistance

The bulls remain in the driver’s seat when it comes to stocks. Strength within the stock market is broad with the S&P 500, Nasdaq 100 and Russell 2000 recording new highs here in December. There is also broad strength within the stock-related ETFs with dozens of new highs. Tech-related ETFs reasserted themselves as the true leaders with breakouts in late November and new highs throughout December. Keep in mind that these ETFs also recorded new highs in September (XLK, SKYY, IGV, SKYY, FND, IPAY, FINX, HACK).

Energy ETFs led the way from early November to mid December and then pulled back the last two weeks. Some even became short-term oversold within uptrends. An opportunity, perhaps, but there are stronger long-term charts out there. Finance-related ETFs also led in October-November and then stalled the last few weeks. The Regional Bank ETF (KRE) and Finance SPDR (XLF) are breaking out of short-term consolidations as I write.

Money continues to favor the risk-on trade, which benefits stocks and commodities. The 20+ Yr Treasury Bond ETF (TLT) remains in a downtrend and fell sharply in early trading on Wednesday. The Gold SPDR (GLD) is at an interesting juncture as it challenges resistance from a falling channel. Note that StochClose for the Silver Miners ETF (SIL) triggered bullish this week and the Silver ETF (SLV) broke out last week.

Note that today’s report is more focused and less broad than the normal Thursday report. I am merging some broad market insights with current signals and setups in the ETFs. Check the ChartBook link above for insights on the 50 plus All Weather ETFs.

Holiday Scheduling

The next commentary will be on Wednesday, December 30th. After that, the normal schedule will resume in January.

Merry Christmas and Season’s Greetings!

Recent Trend and Mean Reversion Signals

Note that a beta version of the ETF ranking table is now available. This table can be sorted, searched, exported and printed. There are even chart links! Click here to check it out.

There was one new StochClose signal over the last past week: the Silver Miners ETF (SIL) turned bullish. XLE, XOP and AMLP triggered bullish 12-13 trading days ago and fell back pretty hard this past week, along with oil. Notice that the 52-week range is below 50, which means these three are in the bottom half of their 52-week price range.

Note that StochClose signals are part of a trend-following strategy that is detailed in a six part series that can be found mid way down the Premium Page. The Core Chartlist with 117 ETFs is used for this table and this can also be found on the Premium Page.

The chart shows the Silver Miners ETF with a whipsaw just before the bullish signal (red circle) and another chart lesson similar to URA. StochClose triggered bearish with a move below 40 as SIL tested its rising 200-day SMA. Despite this signal, the structure of the price move since April was potentially bullish because SIL hit a new high and corrected with a falling wedge. Relative to the prior advance (185%), this decline was mild and looked corrective in nature. I elected to draw an internal trendline through the early November pop and it looks like SIL broke out with the move last week. This matches the breakout in SLV, which is shown further down.

The next image shows the biggest StochClose movers (up) over the last five trading days. SLV and ITB made big moves and these are reflected on the charts with their breakouts (shown further down). YOLO and PBW broke out of smaller consolidations and also moved higher.

YOLO is stronger than the Alternative Harvest ETF (MJ), but the latter still has a short-term bullish continuation pattern working (small falling wedge).

There were some pullbacks over the past week and these pushed RSI into the oversold zone for 11 ETFs. The Consumer Staples SPDR (XLP) was pushed into oversold territory with an ex-dividend gap lower on Monday. The Chinese ETFs are still the most interesting of the group because they recorded 52-week highs in November and are showing some upside leadership longer-term (ASHR, KWEB, CQQQ, FXI). XLRE, KIE, XLE and such did not record new highs this year and are not longer-term leaders.

The chart below shows FXI with a new high in mid November and a correction that retraced around 50%. I just drew a fat dashed line to mark the correction because the falling flag lines looked silly with the spikes on November 9th and 27th. FXI is also at potential support from broken resistance. Watch for a short-term upside catalyst to suggest that the correction is ending and the downtrend is resuming.  

SPY Grinds Higher

SPY remains in an uptrend with the triangle breakout and extension higher via a tight rising channel. Monday’s bar seems like a wide-ranging day, but the intraday charts do not confirm an intraday high at 378.46. Again, these type of intraday spikes are why I like to base my indicators on closing prices. StockCharts has the daily bar correct (IMHO), but Optuma, TradingView and the Wall Street Journal show the errant spike.

As with many charts, SPY is in a clear uptrend and currently in the trend monitoring phase. The oversold signal was in late October / early November and the breakout signal was a few days later. SPY is building on this breakout with a grind higher, kind of like in July. A break below the channel may seem short-term negative, but would just pave the way for the next oversold setup. The breakout zone in the low 350s becomes first support.

IWM and XRT Continue to March Higher

The Russell 2000 ETF (IWM) opened weak on Monday (191.90), quickly recovered and closed at 197.46 on Tuesday. The ETF is leading the way since the gap/breakout on November 9th with a 16% gain since the close on November 9th. Despite leadership, IWM is still looking extended and ripe for a rest. The ETF is up almost 30% since October 31st and over 33% above its 200-day SMA. Moreover, RSI has been above 70 for 13 days and this is the most since October 2017. Even so, IWM continues to hold the ATR Trailing Stop and shows no real signs of selling pressure.

The Russell 2000 ETF (IWM) and the Retail SPDR (XRT) represent two areas of the market that have relatively little international exposure and are mostly tied to the domestic economy (USA). As with IWM, XRT continues to work its way higher and RSI continues to flirt with 70. The green shading shows when RSI is above 70 and ETFs are typically “overbought” for a few weeks before a correction unfolds. RSI first moved above 70 on November 23rd and is back above 70 this week (21 trading days). Even so, the ATR Trailing Stop continues to hold as XRT works its way higher.  The current breakout is 34 bars long and added 22.6%. The July breakout lasted 37 bars and added 22% before a correction took hold.

You can learn more about ATR Trailing stops in this post, which includes a video and charting option for everyone.

ITB Holds Breakout

The Home Construction ETF (ITB) is another one of these domestic-centric ETFs. Not many US homebuilders have developments in Belgium! ITB led the market and outperformed IWM from late March to mid October and then consolidated into mid December. ITB underperformed during the consolidation period, but has sported a higher year-to-date gain since May. Currently, IWM is up 19% this year and ITB is up 30%. Returning to the price chart, ITB formed a consolidation within an uptrend and broke out last week. The red line marks the ATR Trailing Stop, but this is not needed right now because I will use the December low for the stop.

IGV and FDN Extend on Breakouts

The Cloud Computing ETF (SKYY) and Cyber Security ETF (HACK) were the first to break out of consolidation patterns in late November and both extended sharply higher. The Software ETF (IGV) and Internet ETF (FDN) were a little more tentative on the breakouts, but both of these moved higher in December and also extended on their breakouts. All four recorded 52-week highs this week and are leading the market again. SKYY and HACK are up around 30% since November 2nd and getting quite frothy. IGV and FDN are up around 16% since November 10th and not quite as frothy.

XLU Gaps Down on Dividend

Dividends are a pain in the buttocks when it comes to charting. Frankly, I wish they did not even exist. But they do and several ETFs went ex-dividend on Monday, including the sector SPDRs. XLU and XLP appear to gap down because they went ex-dividend on Monday. Sometimes the dividend movement is obvious, most of the times we don’t even notice it after a few days. The green dashed lines show the prior two ex-dividend days. While I do not think there is a strategy based on ex-dividend dates, I did notice that XLU bounced a week after the dividends in June and September. The falling channel currently defines the downtrend in XLU and a break above 63 would reverse the fall.

Gold Hits Resistance and Silver Holds Breakout

The Gold SPDR (GLD) bounced near the 67% retracement and rising 200-day SMA with a three week advance and then fell back the last few days. This little pullback affirms resistance at 179 and the channel is still falling. At this stage, the bottom picking signal triggered with the bounce back above the 200-day. I am now watching for the breakout signal.

The Silver ETF (SLV) continues to lead gold with a breakout and move above the November high. SLV fell back hard on Tuesday, but this is not enough to negate the breakout. Overall, SLV hit a new high in July and then corrected into late November with a triangle thingy. The breakout signals a continuation of the bigger uptrend. The mid December lows mark first support, a break of which would denote a failed breakout.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
Choose a Strategy, Develop a Plan and Follow a Process

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