ETF Trends, Patterns and Setups – New Highs Galore, Techs Still Leading, Bond-Proxies Pop

Stocks as a whole remain overextended and strong. The big three (SPY, QQQ, IWM) are setting the tone for the overall market as they remain with tight rising channels and steady short-term uptrends. Some ETFs look quite ripe for a pullback (SOXX, PBW, TAN), but there are also ETFs that sport fairly fresh breakouts (XLI, KIE, XLU and REZ). In fact, we are seeing some money move bond-proxies with the breakouts in XLU and REZ. Tech-related ETFs continue to lead overall with new highs in SOXX, FINX, SKYY, HACK and FDN. Housing found its mojo back this week as ITB surged. TLT remains the big laggard and continues its inverse correlation to SPY.

There were a zillion 52-week highs on Wednesday. Well, maybe not a zillion, but 46 of the 117 ETFs in the Core List recorded 52-week closing highs. This reflects broad strength in the current advance. The 52-week Range column on the ETF Ranking, Signals and Setups table is based on the 255-day StochClose. 46 ETFs finished at 100, which means the close was the highest close in 255 days. Another 34 finished above 95, which means the close is within spitting distance of a 255-day closing high. Below is a list of the new highs.


When sorting the table by the 52-week Range, note that the Oil & Gas Equipment & Services ETF (XES), Energy SPDR (XLE), Airline ETF (JETS), Mortgage Real Estate ETF (REM), MLP ETF (AMLP) and 20+ Yr Treasury Bond ETF (TLT) are at the bottom, which means they are the furthest from 52-week highs. The scores range from 56.2 for XLE and 43 for TLT. The Dollar Bullish ETF (UUP) is the weakest with a score of 7.7, which means it is fairly close to a 52-week low.

Strong and Steady Uptrend


There are several ETFs with steady and strong uptrends, but a few are looking quite extended. In particular, the first four ETFs in this group are a lot more extended and ripe for a correction than the latter four. For example, the Retail SPDR (XRT) and Semiconductor ETF (SOXX) are up some 40% since late October – on top of already big gains from March to October. The Clean Energy ETF (PBW) and Solar Energy ETF (TAN) are up over 80% and RSI exceeded 80 a few times over the last two months. Despite the extended nature, these uptrends show little sign of letting up. The first chart shows SOXX with a normal rising channel from June to December and a sharp extension higher here in January. RSI reached 82.58 in mid January, which is its highest level since November 2017. Short-term traders can consider the ATR Trailing Stop (red line), while longer term traders may want to prepare for a corrective period.

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

The next charts show the Medical Devices ETF (IHI) and Water Resources ETF (PHO) with more modest advances since early November, 13.5% and 22%, respectively. The size of the advance tells us which ETF gained the most, but it does not help when assessing the stability of an uptrend. Even though these uptrends are less steep, they are just as steady and strong.

Strong Uptrend, Short-term Consolidation, Breakout*


ETFs in this next group rested with short consolidations over the last few weeks. All four participated in the recent moonshots with monster gains from early November to December. The Mobile Payments ETF (IPAY), FinTech ETF (FINX) and DB Base Metals ETF (DBB) started to stall out in mid December and corrected as RSI gravitated back towards 50. RSI did not dip below 50 for IPAY or FINX, but it did dip into the oversold zone for DBB.

The charts show FINX and IPAY with pennants and pennant breakouts. As noted before, high and tight flags or pennants are very short-term setups and prone to whipsaw. The breakouts are bullish with the pennant lows marking first support. However, because the pennants are so tight and the breakouts so fresh, a little volatility could push prices below the pennant lows. While a move below the pennant low would negate the breakout, it would not be that bearish because the big trend is up and pullbacks within an uptrend create opportunities.

Early November Breakout, Tight and Steep Rising Channel


ETFs in this next group broke out in early November and then moved sharply higher with steep rising channels. The first chart shows IWM dipping into the oversold zone in late October-early November and then breaking out to new highs on November 9th (vaccine day). This surge was like a rocket lifting off and the advance went into cruising mode after liftoff. The channel is extremely tight, but continues to hold as buying pressure remains stronger than selling pressure. The ATR Trailing Stop is also holding.

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

Early November Breakout, Market Leading Surge Since


ETFs in this next group also broke out in early November and led the market since these breakouts. Truth-be-told, there is some hair-splitting involved when putting these ETFs into their groups. The Regional Bank ETF (KRE) and Strategic Metals ETF (REMX) did not correct in December and simply continued higher, while the Alternative Harvest ETF (MJ) provided a nice pullback opportunity before its breakout in early January. All three are quite extended since early November though.

Early November Breakout, Tight Rising Channel


Now we get to some of the saner uptrends and modest gainers. Note, however, that these uptrends and gains would be deemed spectacular in “normal” times.  QQQ is up around 20% since early November and SPY is up a mere 18%. Both consolidated in September-October, broke out in early November and worked their way higher with rising channels. The tight channels are less steep than those seen in IWM and MDY, and perhaps more sustainable. Channel breaks would reverse the short-term uptrends and argue for a corrective period within the bigger uptrends. No signs of a break so far.

Flag/Pennant Breakout and Extension after Breakout


ETFs in this next group consolidated after new highs and broke out in late December or early January. The post-breakout extensions show strength because of the follow through. These ETFs are now in the monitoring phase, which means the setups/breakouts have past and we are monitoring post-breakout price action. This is the time to plan your trade: set a trailing stop, set a profit target, set an exit strategy based on a support level or ride the bigger uptrend.

The chart below shows the Finance SPDR (XLF) with the flag in December and breakout in late December. The ATR Trailing Stop shows a possible trailing stop.  The green zone marks support from the December lows for a possible exit strategy. For longer-term trend followers, StochClose signals and 200-day SMA can be used to define the long-term uptrend. The second chart shows the Healthcare SPDR (XLV) with a breakout and extension higher.

Flag Breakout, Extension and New High


The Cloud Computing ETF (SKYY) and Cyber Security ETF (HACK) shot higher from early November to late December, fell back with a falling flag and broke out on January 7th. RSI hit 49.95 on January 6th for SKYY, but did not even break below 60 for HACK. The higher RSI value indicates that the dip in HACK was shallower (less selling). Both hit new highs after these breakouts and are STILL leading the broader market.

Throwback to Breakout Zone and Flag Breakout


The Software ETF (IGV) and Internet ETF (FDN) also broke out of flag patterns, but their dips were deeper as RSI moved into the 30-50 zone on January 6th. Both ETFs broke out of medium-term consolidations in mid December and fell back to their breakout zones in early January. The falling flag patterns were classic throwbacks that tested the breakout zone. The flag breakouts are bullish and both are starting their extension higher, while the flag lows mark first support.

Flag Breakout and Modest Extension after Breakout


The three ETFs in this group formed short-term consolidations and broke out, but follow through has been rather timid. In other words, these ETFs are still near their breakout zones. The cup is clearly half full because all three are in long-term uptrends. StochClose is on a bullish signal and they are above their rising 200-day SMAs. Additionally, the consolidations are short-term bullish continuation patterns and the breakouts are still valid with the consolidation lows marking first support going forward.

New High in October, Tight Consolidation, Breakout


Is the third time lucky for the Home Construction ETF (ITB)? ITB hit a new high in October and led the market with a 170% advance at the time. ITB then moved into a narrowing consolidation and underperformed the market the last three months. SPY, IWM and QQQ were hitting new highs and ITB was just drifting. Even so, this “drift” was viewed as a consolidation within a bigger uptrend and this is a bullish continuation pattern. ITB broke out with a big move the last seven days and this signals a continuation of the bigger uptrend.

The indicator window shows RSI flirting with the oversold zone from October 21st to January 8th. During this flirtation period, StochRSI popped three times with moves above .80 (yellow lines). StochRSI is the Stochastic Oscillator applied to RSI, which means it measures the momentum of momentum. It is a hyper-sensitive early warning indicator and the StochRSI pop sometimes foreshadows a breakout. Well, this is the third pop and it looks like we have a breakout.

Market Leading Surge since November, Far from 52-wk High


The energy-related ETFs feature in this group. They have market-leading advances since early November, but they are still well below their 52-week highs and quite extended short-term. For the second time in less than 12 months, the Oil & Gas Equipment & Services ETF (XES) more than doubled in less than three months. XES rose some 138% from March 18th to June 8th and some 115% from October 29th to January 14th. Despite doubling twice, XES still needs another 60% advance to reach last year’s high. Most recently, XES broke out of a small pennant on January 5th and extended higher. I will keep these ETFs on my watchlist, but do not see a tradable or investable setup right now.

Mid December Breakout, Throwback and Support Bounce


The Silver ETF (SLV) continues to perform better than the Gold SPDR (GLD). I am putting these two in the same group, but GLD belongs in a lower group. First, SLV is in a long-term uptrend because StochClose has been bullish since mid May and price is well above the rising 200-day. In contrast, StochClose is bearish for GLD and price is barely above the rising 200-day. Second, SLV consolidated after the new high in early August, broke out of this consolidation and exceeded the October high. GLD, in contrast, did not exceed its October high on the recent breakout attempt. Third, SLV fell back to the breakout zone with a sharp decline on January 8th and held. GLD pierced its 200-day with the sharp decline. In short, SLV still looks bullish and GLD looks mixed.

Slow Uptrend since April, Nov-Dec Falling Wedge, Breakout


The Utilities SPDR (XLU) and Residential REIT ETF (REZ) represent bond-proxies because they are relatively high-yielding stock ETFs. Both sport similar chart characteristics with rising channels marking slow uptrends since April. Both fell back from late November to late December and then firmed into early January. These declines retraced 1/2 to 2/3 of the prior advance and formed falling wedges. Both the retracement amount and the falling wedge are typical for corrections within a bigger uptrend. Signs of a breakout are emerging as these two turned up the last five days and broke above their early January highs.

Other ETFs and Groups:

Uptrend, but below September High and Lagging: XLP

Trading Range since June, Breakout within Range: XLRE

Downtrend or Rangebound since August and Lagging


The 20+ Yr Treasury Bond ETF (TLT) has a possible bullish setup on the weekly chart, but sports a clear downtrend on the daily chart. The trend since August is down, daily StochClose is on a bearish signal and price is below the falling 200-day. The bullish setup on the weekly chart starts with TLT firming near the 50% retracement and broken resistance zone. Also notice that the decline formed a massive falling wedge after a 33% advance. TLT plunged three weeks ago and firmed the last two weeks. At the very least, this could set the stage for an oversold bounce. More work is needed to reverse the long-term downtrend though.

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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