ETF Trends, Patterns and Setups -Big Tech Gets Extended, Small-Growth Breaks Out, Copper ETFs Set Up, Telecom Pops (Premium)

SPY remains in a steady uptrend, QQQ is leading with a surge to new highs and the S&P SmallCap 600 SPDR (IJR) remains stuck in a consolidation. The deterioration in breadth is affecting mid-caps and small-caps, but not large-cap tech driven ETFs, such as SPY and QQQ. Small-caps, however, got a big bounce on Friday. I am not quite ready to call for a small-cap revival, but I am watching the Russell 2000 Growth ETF (IWO) because it has a big wedge breakout working. The large-cap tech ETFs are leading, but they are quite extended short-term and I do not see any setups. Setups appeared in several ETFs that pulled back in May-June. In particular, I am seeing bullish patterns in ETFs related to materials, copper miners, timber, health care providers, steel and telecom.

Note that I covered the major index ETFs, intermarket performance, sector performance and medium-term breadth on Friday (here).

Vacation Notice

It is time for a little vacation in July and the publishing schedule will be as follows:  

  • Vacation from July 12th to 17th (Monday to Saturday)
  • Normal Schedule resumes on Thursday, July 22nd

Think I will reread Reminiscences of a Stock Operator and Trading in the Zone.

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

Uptrend, New High, Extended


The Technology SPDR (XLK) and Nasdaq 100 ETF (QQQ) are leading the market with strong uptrends, new highs and double digit advances since mid May. The chart below shows that this latest move started with a reversal near the 67% retracement line and short-term breakout (blue arrow). XLK is clearly short-term extended at this stage and this puts it in the trend-monitoring phase, which means there is nothing to do but monitor price action, consider exit options and wait for the next setup. I am seeing similar characteristics in a number of tech-related ETFs. The ATR Trailing Stops are shown for reference.

Big Triangle, Breakout, New High, Extended


The Software ETF (IGV), Internet ETF (FDN) and Cybersecurity ETF (CIBR) formed big triangles from February to May, broke out with big moves into June and extended to new highs the last few weeks. The triangle breakouts are long-term bullish (weekly charts), but all three are quite extended after 15-19 percent moves the last nine weeks. They are in the trend-monitoring phase.

Big Triangle, Breakout, Strong Extension


The Cloud Computing ETF (SKYY) and Biotech ETF (IBB) charts are similar to the three above, but these two did not record 52-week highs yet. Nevertheless, they sport big triangles, triangle breakouts and big advances the last nine weeks.

Semis Stall around Breakout Zones


The semiconductor ETFs surged from November to February and then moved into choppy/zigzag uptrends the last four months. SOXX sports a series of higher highs and higher lows since March, while SMH broke out of a large triangle in late June. The Next Gen Connectivity ETF (FIVG) formed an Ascending Triangle, broke out in mid June and then consolidated just above the breakout zone. These ETFs were hit hard on Thursday and the declines triggered ATR Trailing Stops for short-term traders. Long-term, the charts are bullish, but I do not see a setup right now.

Oversold Bounces within Corrections


The S&P MidCap 400 SPDR (not shown) remains with a falling channel correction since mid May, while the S&P SmallCap 600 SPDR (IJR) and Russell 2000 ETF (not shown) formed sideways corrections that extend back to mid March. All three dipped below their 50-day SMAs and RSI dipped into the oversold zone earlier this week, and all three bounced on Friday. The chart below shows IJR with a short-term mean-reversion setup/bounce within its consolidation. This is at least the sixth such setup/bounce (blue arrows).

The 50-day SMA can be used to benchmark performance. ETFs trading above the 50-day SMA are stronger than ETFs trading below. ETFs trading well below their 50-day SMAs are lagging the broader market because SPY is above its 50-day SMA.

Big Wedge Breakout and Oversold Bounce


The growth end of the Russell 2000 has been under pressure since February and this has weighed on small-caps. This could be changing as the Russell 2000 Growth ETF (IWO) breaks out of a big falling wedge and bounces off the breakout zone this week. The chart below shows IWO with a 60% advance into February and a new high. The subsequent falling wedge retraced 50% and returned to the rising 200-day in mid May. Both the pattern and the retracement amount are typical for corrections within a bigger uptrend. It is a two steps forward and one step backward sequence. Short-term, IWO broke out of the wedge in mid June and fell back to the breakout zone earlier this week. The ETF bounced on Friday and this reaffirms support in the 292-300 area. I would consider this wedge breakout valid as long as IWO holds 292.

Multi-week Correction, Breaking Out


The Healthcare Providers ETF (IHF) and Global Timber Forestry ETF (WOOD) could not be any different business-wise, but their chart patterns are similar: uptrends, pullbacks, breakouts. The pullback in WOOD is much deeper because the prior advance was bigger. Nevertheless, a pullback within an uptrend is deemed a bullish continuation pattern and a breakout signals a continuation of the bigger uptrend. WOOD broke the wedge line and triggered a StochRSI pop on June 21st, while IHF triggered a StochRSI pop and broke short-term resistance. The short red lines mark the ATR Trailing Stops for reference.

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

Sharp Pullback, Stall, Gap Up


The Materials SPDR (XLB) was hit hard in June with a decline to the low 80s. This decline did not form a classic falling wedge or channel, but it did retrace 33-50 percent, which is normal for a correction within a bigger uptrend. XLB then stalled for a few weeks and surged with a gap up on Friday. The close was strong and it looks like XLB is breaking out of the small consolidation. The candlestick chart shows a few StochRSI pops the last two weeks (surges above .80). A close below 81 would call for a re-evaluation of this setup.

Multi-week Correction, Challenging Resistance


The Copper ETF (CPER) and Copper Miners ETF (COPX) led the market with massive advances in early May and then corrected pretty hard. Both fell well below their 50-day SMAs, but did not come close to their rising 200-day SMAs. The blue lines on the chart below define the correction in CPER. The ETF bounced and then stalled to establish short-term resistance. There was even a StochRSI pop on June 25th. Follow through above this week’s high would complete a breakout and signal a continuation higher. The short red line marks the ATR Trailing Stop for reference.

The Steel ETF (SLX) sports a similar pullback, though a little less deep. A falling channel formed the last eight weeks and a breakout at 64 would be bullish. Note that there was a StochRSI pop on June 24th and the ATR Trailing Stop was tested on Thursday (short red line).

The Telecom ETF (IYZ) fits in this group because it is consolidating within an uptrend. IYZ formed a triangle or flat consolidation as price action narrowed the last eight weeks. IYZ has been trading around the 50-day SMA and RSI has been dipping into the oversold zone during this timeframe. A triangle breakout would signal an end to the consolidation and a resumption of the bigger uptrend.

Choppy Trading after Breakout


The electronic vehicle ETFs broke out with big moves from mid May to early June and price action then turned choppy. The big patterns and breakouts remain valid. Choppy price action pushed all three back to their 50-day SMAs and RSI dipped into the oversold zone (30-50) for a mean-reversion setup. Keep in mind that a move below the 50-day SMA is more of an opportunity than a threat after a breakout. In other words, it is a chance to partake in the bigger uptrend after a pullback.

Gold and Silver Get Oversold Bounce

The Gold SPDR (GLD) and Silver ETF (SLV) got oversold bounces this week and the bounces are largely holding. My main focus is on GLD because it is less volatile, chart analysis is easier and silver moves with gold. GLD is in a long-term downtrend, but caught my eye because it was testing a potential reversal zone marked by the 67% retracement and broken resistance. After a big move, a decline to such reversal zones can provide a bullish setup. GLD bounced off this zone and broke short-term resistance to reverse the downswing. This breakout is holding with the short red line marking the ATR Trailing Stop for reference.

SLV broke out, but failed to hold this breakout as it fell back rather hard Tuesday through Thursday. SLV remains in a possible reversal zone marked by the 50-67 percent retracement zone and the 200-day SMA. The short red line marks the ATR Trailing Stop for reference.  

Pullback and Test after Short-term Breakout


The clean energy ETFs, ICLN and PBW, broke out of long-term falling wedges in late May and short-term pennants in late June. They are trading above their 50-day SMAs (green dashed line) and just below their rising 200-day SMAs (red line). Both were hit earlier this week and then bounced on Friday. The mid June lows mark first support to watch for a failure (green shading) because a break below these lows would invalidate the pennant breakouts.

Failed Wedge Breakout


The Home Construction ETF (ITB) was setting up with a falling wedge into mid June, a StochRSI pop on 21-June and a wedge breakout in late June. The post-breakout follow through was cut short as ITB fell sharply this week and close below the ATR Trailing Stop. ITB is also lagging quite badly because it peaked on May 10th and remains well below this high.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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