ETF Trends, Patterns and Setups – True Leaders and New Leaders, Big Runs and High RSI Values

Most stock-related ETFs are in uptrends of some sort and many are quite extended after big runs since late October (27 days). ETFs hitting new highs this month are the true leaders (SPY, QQQ, IWM, XME, XRT, SKYY). There is also a group with market-leading gains the since late October, but they are not “true” leaders. The energy-related ETFs (XES, FCG, XOP) are up more than 40%, the Airline (JETS) and Defense-Aerospace ETFs (ITA) are up more than 30% and the banking ETFs (KBE, KRE) are up more than 20% since late October. Despite these market leading moves, they are all short of 52-week highs and not true leaders.

Regardless of the leadership debate, note that around half (47) of the equity related ETFs in the core list are up more than 20% over the last 27 days. These are big moves! In addition, RSI exceeded 75 at some point over the last two weeks for 45 ETFs. 70 is a generic overbought level for RSI and ETFs often continue higher after the first move above 70. 75 is a little more extreme.

The combination of outsized gains and large numbers of overbought ETFs is a short to medium term concern. I do not consider this bearish, but it does increase the odds for a correction. Keep in mind that corrections can evolve as pullbacks or sideways consolidations. Timing a correction within an uptrend is notoriously challenging, but we should prepare and plan for such contingencies. Traders might consider tightening stops or taking some money off the table. Trend followers and those with longer time horizons can consider correction possibilities and how much of a pullback they wish to adsorb.

Recent Trend and Mean Reversion Signals

The table below shows StochClose signals over the last three weeks. Three energy-related ETFs triggered bullish StochClose signals over the past week (XOP, XLE, AMLP). The next to the last column measures the 52-week range (100 = new high and 0 = new low). These three ETFs are still below 50, which means they are below the mid point of their 52-week range. Elsewhere, there were bullish signals in the Uranium ETF (URA) and the Natural Gas ETF (FCG) two weeks ago. Notice that URA is near a 52-week high with a 52wk Range score of 90. The Silver Miners ETF (SIL) and Gold SPDR (GLD) triggered bearish two weeks ago.

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 example below shows StochClose turning bullish (green shading) for XLE after a 40% advance. Trend-following strategies are not know for their timely low-risk entries. They are famous because they catch a few good trends that pay for the whipsaws, which happen around 60% of the time. XLE is quite extended after this monster move and my personal preference is to wait for a tradable pullback to emerge.

The next table shows ETFs with bullish StochClose signals (True) and oversold conditions (OBOS = True). This means the bigger trend is up and RSI(14) is in the 30-50 zone. Notice that the Corporate Bond ETF (LQD), Home Construction ETF (ITB) and China Large-Cap ETF (FXI) have 52wk Range scores above 80, which means they are fairly close to 52-week highs and sport stronger long-term charts than the other three.

The chart below shows an example with FXI. At this point, FXI is in the setup stage and I am watching for some sort of short-term bullish catalyst, such as a StochRSI pop above .80. The blue vertical lines show the previous times when RSI dipped into the 30-50 zone and StochRSI popped above .80.

ETF Grouping and Ranking by Trends, Patterns and Setups

Strong Uptrend, Serious Acceleration, Overextended


The first group of ETFs are the leaders with new highs in December and strong uptrends. Many are getting extended after big runs the last five to six weeks. The first chart shows the Semiconductor ETF (SOXX) advancing 26.8% in 27 days, which is around 1% per day. This is the sharpest five week advance since March-April when the ETF surged some 43% in 28 days. A surge off a low is generally bullish, but an outsized advance after an extended uptrend is a bit dicey because it shows frothiness. This is not a danger to the long-term uptrend, but it does increase the likelihood of a pullback or consolidation. 

The next chart shows the Retail SPDR (XRT) with a lot going on. First, the long-term trend is up with StochClose bullish (True) since late May and the ETF hitting new highs since July. Most recently, XRT surged some 26% in the last 26 days and is getting quite extended. The green shading shows that RSI has been at or above 70 for two weeks now. Traders can consider tightening their stops and/or taking some money off the table. Investors and trend followers can remain long, but should be prepared for a corrective period, which would involve a pullback or consolidation.

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

Steady Uptrend, New Highs


Strength in retail drove the Consumer Discretionary SPDR (XLY) to a new high here in December. In contrast, the two biggest components, AMZN (21.5%) and HD (11.8%), stalled the last few months and are trading closer to their September lows. I do not see a tradable pattern in XLY – just an uptrend. The ETF led from late March to early September and then worked its way higher. Strength in retailers was offset by sideways trading in AMZN and HD. The charts for AMZN and HD are similar to those of MSFT, NVDA, AAPL and FB: narrowing consolidations since early September.

Uptrend, New High, Short-term Consolidation, Breakout


The Healthcare SPDR (XLV), Medical Devices ETF (IHI) and Healthcare Providers ETF (IHF) worked their way higher from May to October, popped to new highs in November and then consolidated with short-term bullish continuation patterns (flag, pennant, small wedge). All three broke out over the last few days and these breakouts signal a continuation higher.

Aug-Oct Consolidation, Breakout, Surge, Overextended


The Metals & Mining SPDR (XME) and the Strategic Metals ETF (REMX) are two of the most extended ETFs, as is the Steel ETF (SLX). All three are up more than 40% since late October and all three recorded new highs this past week. Once again, we have a case where the long-term trends are clearly up, but price action is getting quite frothy. The chart below shows XME with a breakout in early November and a 44.24 degree advance (angle of the trendline). The March-April trendline was 25 degrees. Notice how XME fell hard for three days and the resumed its advance then. A similar hard 2-3 day fall could set up a mean-reversion bounce here.

Jun-Oct Rising Channel, November Acceleration, New High


The next chart shows the Russell 2000 ETF (IWM) surging from March to May, working its way higher with a rising channel from June to October and then catching fire in November with a 24% gain. IWM is in the midst of a strong move and in the trend monitoring stage, which means the signals triggered and I am simply monitoring price. The red line marks the ATR Trailing Stop and I tightened it by changing the multiplier to 2 (short-term traders). Longer-term trend followers should just be on guard for a corrective period (pullback or consolidation). Also notice that RSI has been flirting with the 70 level since November 16th.

Jun-Oct Consolidation, Early Nov Breakout, New High


The S&P 500 EW ETF (RSP) and S&P SmallCap 600 SPDR (IJR) stalled with Ascending Triangle formations from June to October, broke out in early November and hit new highs over the last four weeks. The chart shows RSP with a breakout, big gap on V-day (vaccine day) and a continuation higher. RSP is up some 20% since late October and there is nothing bearish on this chart, even though a little caution may be advised after this big move.

Sep-Oct Consolidation, Early Nov Breakout, New High


ETFs in this group consolidated in September-October, broke out to new highs in November and held their breakouts. They are in uptrends overall and in the monitoring stage right now. The chart below shows SPY breaking out and then working its way higher (green lines). This short-term rising channel defines the short-term uptrend. While a break would have short-term ramifications for a stop-loss, it would not affect the long-term uptrend and just set up the next mean-reversion opportunity. Pullbacks are our friends in uptrends.

Facebook was all over the news on Wednesday and it is a big part of the Communication Services SPDR (21.85%). Alphabet (GOOGL), a distant relative of Facebook, accounts for 24.43%. Not much diversification here. XLC broke out of a triangle with a bang and worked its way to a new high. Wednesday’s sharp decline was not enough to derail the short-term rising channel. As with SPY, a channel break might be enough for short-term traders to trigger stops, but it would not affect the bigger uptrend. I will entertain support levels and such should XLC break the channel.

Sep-Oct Consolidation, mid Nov Breakout, New High


ETFs in this next group also formed consolidation patterns and broke out, but they broke out a little later than SPY. The Nasdaq 100 ETF and Technology SPDR (XLK) were hit with selling pressure in large-cap techs on Wednesday. QQQ hit a new high this week, but XLK fell just short of its early September high. The chart shows XLK breaking out of the triangle in mid November. The breakout was quite tentative, but XLK moved higher the last two weeks and then fell on Wednesday. One day does not a trend make. Should the ETF fall further, the tight consolidation in the 120-122 area may offer support.

Aug-Nov Consolidation, Early Dec Breakout, New High


The Biotech ETF (IBB), which has nothing to do with Facebook and the Communication Services SPDR, also succumbed to selling pressure on Wednesday with an outside reversal. This is just one day and does not negate the big triangle breakout or the pennant breakout. The breakout zone also turns first support to watch.

Sep-Nov Consolidation, Late Nov Breakout, New High


The four tech-related ETFs in this group consolidated longer than SPY and XLK, and broke out later (late November). All four fell on Wednesday, but still have long-term uptrends and medium-term breakouts working. The Software ETF (IGV) and Internet ETF (FDN) formed Ascending Triangles and fell back to their breakout zones. They could even move back into the patterns and still be in uptrends.

The Cloud Computing ETF (SKYY) and Cyber Security ETF (HACK) are stronger than the two above because they broke out earlier and remain above their breakout zone. Both are up sharply since late October and also ripe for a rest. The breakout zones turn first support to watch should we see a throwback.

New High mid Oct, Tightening Consolidation


The Home Construction ETF (ITB) hit a new high in mid October and then moved into a narrowing consolidation (triangle). A consolidation within an uptrend is a bullish continuation pattern and RSI dipped into the oversold zone. Thus, ITB remains on the radar for a short-term bullish catalyst, such as a breakout or StochRSI pop above .80. Such a pop would be the second since this consolidation formed.

Jun-Sep Falling Wedge, Oct-Nov Breakout, Overextended


The Regional Bank ETF (KRE) is in the midst of an amazing run with a wedge breakout and 50% advance since late September. The red line marks the ATR Trailing Stop and I tightened it by changing the multiplier to 2 (from 3). Like many others, KRE is quite extended after this advance and I am just going to wait for a tradable pattern to unfold. There is no telling how long this will take: could be weeks. The Alternative Harvest ETF (MJ) is in the same boat.

Multi-Month Consolidation, Breakout and Pullback


The Utilities SPDR (XLU) and Residential REIT ETF (REZ) have similar looking charts with long consolidations, breakouts and short-term pullbacks. The DB Agriculture ETF (DBA) is different because it broke out in July-August, consolidated in September-October and broke out again in November. DBA fits in this group because it too has a short-term pullback and bullish continuation pattern working.

The remaining ETFs are not on my radar, except the Silver ETF (SLV). There are some comments regarding SLV, TLT and GLD in the last section. The charts for these ETFs are available in the ChartBook (link above).

Jun-Oct Consolidation, Early Nov Breakout, No New High


Stuck in Consolidation since June


Jun-Oct Falling Wedge, Early Nov Breakout, Overbought


Aug-Nov Falling Wedge, late November Breakout


Downtrend Since August


The 20+ Yr Treasury Bond ETF (TLT) fell over the last two weeks and remains in a downtrend since August. This downtrend looked like a correction in September, but TLT moved lower as stocks moved higher and the markets embraced risk. The decline is rather orderly with a falling channel taking shape. A break above the November highs and an RSI break above 60 is needed to reverse this downtrend.

The Gold SPDR (GLD) also remains within a falling channel since August and this decline also looked corrective in October. Alas, the decline simply continued and GLD is one of the weakest ETFs in the All Weather List right now. I will mark resistance at the mid November highs for now.

The Silver ETF (SLV) is holding up better than GLD as a triangle consolidation takes shape and the ETF holds above its 200-day SMA. StochClose is also on a bullish signal and RSI bounced off the oversold zone. SLV surged to triangle resistance and then fell back on Wednesday (must be related to Facebook). The red zone marks resistance and a breakout here would be bullish.

Thanks for tuning in and have a great day!

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

Scroll to Top