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ETF Trends, Patterns and Setups – Big 3 with Different Uptrends, EV ETFs Tests Support, Tech ETFs Consolidate near March Low (Premium)

Today’s commentary starts with three different trends for the big three. I am using the S&P 500 EW ETF instead of SPY, but both sport steady uptrends with their 50-day SMAs holding throughout. QQQ is also in an uptrend, but a more volatile uptrend with deeper dips below the 50-day SMA. IWM is also in a long-term uptrend, but consolidating since March with a lower high in April. The differences in these trends reflect a split market.

The ETF universe is also split. We are still seeing plenty of strength in the old economy ETFs as several recorded new highs in May. The highest of the high flyers remain weak with ETFs related to clean energy, cannabis, cloud, ARK and biotech forging lower lows here in May (below their March lows).

Most eyes are on some tech-related ETFs that held above their March lows. A few are still in uptrends overall and some are consolidating with big triangles. Wednesday’s intraday reversals were impressive, but we still need follow through to trigger short-term breakouts. Barring short-term breakouts, short-term bearish consolidations are taking shape.

Note that I am removing the Greyscale Bitcoin Trust (GBTC) from the core list and the ranking table for two reasons. First and foremost, it is a horribly inefficient way to trade Bitcoin. Traders are better off opening a real crypto account and trading directly. Second, I am working on some backtests using the core list and GBTC is skewing the results because of its volatility.

You can learn more about my chart strategy in this article [1] covering the different timeframes, chart settings, StochClose, RSI and StochRSI.

Steady Uptrends, Short-Term Pullbacks

SPY, RSP, MDY

The broad market index ETFs remain in steady uptrends, but volatility ticked up after the down gaps on May 11th. The bar chart shows the S&P 500 Equal-weight ETF (RSP) in a steady uptrend since December with the rising 50-day SMA holding on each pullback. RSP is a great barometer for the overall stock market because it weights the S&P 500 equally. The blue squares show prior tests of the 50-day SMA when volatility picked up. Rising volatility is more negative than positive, but it does not always result in a trend reversal. The candlestick chart shows a gap down on May 11th and this gap held (red shading). RSP also gapped down on Wednesday. Even though the ETF closed on the high of the day, the gap remains and short-term price action is more negative than positive.

Volatile Uptrends, Deeper Pullbacks

QQQ, XLK, XLY

QQQ remains in an uptrend, but this uptrend is not nearly as steady as the uptrends in SPY, RSP and MDY. This makes sense because stocks in QQQ are more volatile overall and QQQ is not nearly as broad as the other three. The bar chart shows new highs in February and April, and a possible higher low here in May as the ETF retraced 50-67% of the prior advance. This retracement zone is a possible reversal area and a break above 328 would be bullish. The candlestick chart shows the opposing view with a bearish pennant taking shape. Wednesday’s weak open and strong close were impressive, but a follow through breakout is needed to actually reverse the short-term downtrend. Barring a breakout, a pennant could be forming and a break below Wednesday’s low would argue for a test of the rising 200-day.

Consolidating since March

IJR, IWM

Small-caps are lagging SPY and RSP because the Russell 2000 ETF (IWM) and S&P SmallCap 600 SPDR (IJR) have been consolidating since mid March with a lower high in late April. The chart below shows IWM with a triangle on the bar chart as the ETF gyrates above/below the 50-day SMA. The indicator window shows RSI dipping below 40 in late March and below the March low on May 12th. IWM momentum is clearly weaker than momentum for RSP. For timing, the candlestick  chart shows IWM breaking the rising wedge, bouncing back to the breakout zone and falling back the last two days. Even though IWM closed on the high of the day Wednesday, the gap remains and we need follow through above 224 before taking Wednesday’s intraday reversal seriously.

You can learn more the StochClose indicator and strategies in this post. [2]

Uptrend, New High in May, Short Stall or Pullback

XLF, XLI, XLP, PBJ, XLB, XLV, IHF, IYT, PHO

USO, XME, SLX, URA, CPER, DBB, COPX, DBA

The first group of ETFs are in clear uptrends with new highs in May. They all stalled or pulled back the last one to two weeks. Overall, they are in the trend-monitoring phase. This means the setups and signals have come and gone. These ETFs are simply trending higher and I am waiting for the next setups to emerge. Now is the time to manage the position and consider an exit strategy, be it short-term or long-term. The first image shows leadership coming from finance, industrials, staples, healthcare and water resources. The second image shows leadership from oil, metals, steel, uranium, copper and agriculture.

Uptrend, New High in late April, Short Pullback

XLRE, REZ, XLU, XLC

The next group of ETFs peaked in late April and edged lower the last few weeks. The declines look like falling flags, which are short-term bullish continuation patterns. Also notice that RSI dipped into the oversold zone (turned blue). The Communication Services SPDR (XLC) is the odd ball here because the other ETFs are associated with yield: the Real Estate SPDR (XLRE), the Residential REIT ETF (REZ) and the Utilities SPDR (XLU). REZ is the closest to a breakout and XLU is testing the rising 50-day.

KRE Holds Breakout

ETFs related to the finance sector remain strong overall (XLF, KIE, KRE, KBE). The chart below shows the Regional Bank ETF (KRE) with a triangle breakout in late April and modest follow through the last few weeks. And I do mean modest because KRE has yet to exceed the March high (just like IWM). Note that KRE is not immune to broad market weakness because it also gapped down on Wednesday. For now, the ETF is above its 50-day and holding the ATR Trailing Stop. A close below 67.74 would trigger this stop.

You can learn more about ATR Trailing stops in this post [3],
which includes a video and charting option for everyone.

Wedge Breakouts in late April

XLE, XES, XOP, FCG

The energy-related ETFs are also leading with all four breaking out of falling wedge patterns in late April and two of the four hitting new highs in May (XLE, FCG). The red lines show the ATR Trailing Stops for reference. These are set 2 ATR(22) values below the highest close since the breakout. The initial stop on the breakout would have been wider and I usually tighten my stops after an extension higher. For example, start with an 3 x ATR(22) stop and tighten it to 2 x ATR(22).

Falling Wedge Breakout Working

JETS

The Airline ETF (JETS) remains with the falling wedge correction and breakout. Even though the ETF fell back below the breakout zone, I will allow a little wiggle room. Note that I put out a video this week on trading the falling wedge (click here [4]). In short, the falling wedge is a bullish continuation pattern that marks a correction within a bigger uptrend. JETS found support just above the breakout zone and in the 50-67% retracement area. This week’s breakout in price and RSI are bullish. The short brown line marks the ATR Trailing Stop, which is 3 ATR(22) values below the highest close since the breakout. I place the initial stop near the low of the wedge and 3 x ATR(22) matches this low. The stop will rise should prices rise, but trigger on a close below 24.54.

Steep Retracements after New Highs

ITB, IHI

The Home Construction ETF (ITB) and Medical Devices ETF (IHI) show similar patterns as both surged to new highs with big moves and retraced around half with sharp declines. The first chart shows IHI peaking in late April after a 15% advance and falling over 7% in four weeks. The decline is sharp, but IHI is firming in the 50-67% retracement zone. This is a potential reversal zone (think three steps forward and two steps backward). As with many other names, IHI established short-term resistance with the highs of the past week and a breakout at 342 would be bullish.

ITB is a bit different because it peaked less than two weeks ago and fell over 10%. This decline retraced half of the prior 37% advance, but ITB is not really firming like IHI. Also note that volatility is rearing its ugly head so it could be a wild ride. The indicator window shows RSI with a double dip similar to that seen in early March. Note, however, that ITB formed a bull flag into early March and was testing the breakout zone. This was a robust setup. The current RSI setup looks a lot less robust and more like a falling knife.

Consolidation above 200-day, Near Support

CARZ, DRIV, IDRV, BETZ

This next group of ETFs are consolidating above their 200-day SMAs. The Global Auto ETF (CARZ), Autonomous EV ETF (DRIV) and Self-Driving ETF (IDRV) have been trading sideways since the February highs. The Sports Betting iGaming ETF (BETZ) has been trading sideways since the March high. A consolidation within an uptrend is viewed as a bullish continuation pattern. Technically, a break above the consolidation highs ends the corrections and signals a continuation of the uptrends. Chartists looking for a jump on the bigger breakout can play the swing within this consolidation. All four moved from the upper end of their consolidations to the lower end over the last four weeks. This decline is the swing within the pattern and support is at hand. A break above the red resistance zones would reverse this downswing.

Tech Related ETFs: Pullback after New High or Equal High

FIVG, SNSR, IPAY, SOXX, SMH

The tech ETFs in this next group recorded new highs in April or equaled their prior high before falling rather sharply into May. The new highs show uptrend and all are above their rising 200-day SMAs, and March lows. They are also consolidating after sharp declines and at a moment of truth, especially SOXX and SMH. The first chart shows SOXX hitting a big support zone last week and firming. Despite an impressive intraday rebound on Wednesday, we need to see follow through above 410 to actually reverse the downswing. The candlestick chart shows the bearish alternative as a bear flag could be forming and a break below 390 would be bearish.

Tech-related ETFs: Lower High, but above March Low

HACK, CIBR, SKYY, FDN, IGV

The tech ETFs in this group formed lower highs from February to April, fell sharply and held above their March lows. They are testing a big support zone with RSI in oversold territory and long white candlesticks. The bar chart below shows the Software ETF (IGV) testing the support zone and rising 200-day with some big daily swings. A break above 345 would suggest a successful test of support and put the bigger triangle in play, which is a big bullish continuation pattern. Check this video [5] for trading the swing within a pattern. The candlestick chart shows two long white candlesticks in the last seven days. This means the open was at or near the low, the close was at or near the high and there was a big move from open to close. This shows strong buying pressure after the open. The early signals are triggering as StochRSI surged above .80 and RSI broke out of its W pattern. The bearish alternative here is a flag and a break below 333 would confirm this pattern.

IBB Battles 200-day

The Biotech ETF (IBB) is also battling its rising 200-day and support from the spring lows. Note that XBI broke the 200-day and the March lows, which makes it weaker than IBB. IBB retraced 2/3 of the prior advance with a decline back to the breakout zone and 200-day. This is a logical spot for a reversal, breakout and continuation of the bigger uptrend. But the markets are not always logical. The candlestick chart shows a harami and follow through. The red line marks the highest close on May 10th and IBB closed above this level for two days, before moving lower on Wednesday. Wednesday’s decline was not as drastic as some of the others and IBB still has a short-term breakout working.

Broke 200-day and/or March Lows

Here is a list of the weakest ETFs in my universe. They broke their March low or their 200-day SMA at some point in the last few weeks. This means they are lagging and in downtrends. MJ remains well above its 200-day, but it broke its March low and remains in a downtrend. I continue to watch…

CLOU, FINX, ROBO, XSD, IBUY, XBI, MJ, YOLO, ICLN, PBW, TAN, XBI, ARKF, ARKG, ARKK, ARKW

Thanks for tuning in and have a great day!