ETF Trends, Patterns and Setups – Short-term Breakouts Failing, Tech-ETFs Get Extended, Housing Leads Lower (Premium)

There is a lot to cover today after the FOMC rocked the currency, bond and metals markets. Note that I covered the Dollar, gold, Treasuries and high-growth stocks in a commentary earlier today. Sometimes we see a knee jerk reaction after the Fed statement and the markets do not settle down until the following Monday.

Among the ETFs, there are still several holding above their breakouts and near new highs (Energy, 5G, Autos, Defense). These are still the leaders. We are, however, seeing a lot of short-term breakouts fail (Industrials, Materials, Metals, Agriculture). In addition, a few key groups are seriously underperforming since mid May (Housing, Airlines). Even though tech related ETFs are leading since mid May, some are hitting resistance zones and most are quite extended short-term.

The trend indicator shoot out was posted on Wednesday. This in-depth article covers trend following assumptions and expectations, and then goes on to test 11 trend-following indicators using the All Weather ETF List since 2007. StochClose and the Trend Composite performed pretty good. I will add a video to this article in the coming days.

Note that I added seven ETFs to the Core ChartList, which is used on the ranking table. They are shown below with their symbol, sort prefix and name.

  • BDRY 5500 Dry Bulk Shipping ETF
  • IFRA 3040 IN iShares Infrastructure ETF
  • IGN 3010 TE iShares North American Tech-Multimedia Networking ETF
  • IWC 1016 iShares Micro-Cap ETF
  • KRBN 3200 CR KraneShares Global Carbon ETF
  • PHO 3095 UT Invesco Water Resources ETF
  • WOOD 3090 BM iShares Global Timber & Forestry ETF

Holding near New High

XLE, XES, XOP, FCG

Oil remains strong with another new high this week. There is no change on the chart as spot crude broke out to multi-year highs on the bar chart and July Crude Futures (upper left) broke rim resistance of a cup-with-handle. The Heikin-Ashi Candle chart shows USO getting extended after a 16% move since mid May. The breakout zone turns first support to watch should be get a throwback.

The Energy SPDR (XLE), Oil & Gas Equipment & Services ETF (XES), Oil & Gas Exploration & Production ETF (XOP) and Natural Gas ETF (FCG) are pretty much following crude higher and have similar charts. The chart below shows XES with a wedge breakout in early May and strong follow through to new highs in June. There is nothing to do but monitor the trend at this stage because there is no setup right now. The red line shows the ATR Trailing Stop for reference.

Consolidation Breakouts, New High

CARZ, IDRV

The Global Auto ETF (CARZ) and Self-Driving EV Tech ETF (IDRV) are also leading the broader market with consolidation breakouts in late May and new highs. The chart below shows CARZ with a 17.6% surge to new highs and a short consolidation the last two weeks. This could be a high and tight flag, but I find the pattern too short-term and the chances of whipsaw are above average given current market conditions. The breakout zone on the bar chart turns first support to watch should we see a throwback to prior resistance (59-60).

Ascending Triangle Breakouts, New High

FIVG, ITA, XAR

The Next Gen Connectivity ETF (FIVG) and Aerospace & Defense ETF (ITA) are also leading with Ascending Triangle breakouts and new highs here in June. As with XES and CARZ, I do not see a short-term setup right now. Multi-month consolidations (CARZ) and Ascending Triangles (FIVG) are medium-term bullish continuation patterns and the breakouts bode well going forward. Short-term, however, we could see some backing and filling. This is when the short-term setups materialize, such as a falling flag/wedge and RSI dip into the oversold zone. The chart below shows FIVG with a 10% advance since early May and a new high. The red line marks the ATR Trailing Stop for reference.

Clear Uptrend, but still Extended

SPY

The S&P 500 SPDR (SPY) remains in an uptrend and hit new highs again this week. The song remains largely the same because SPY is up some 30% since late October without much of a correction. The biggest pullback was a three week 5% decline from mid February to early March (blue shading). SPY is still in a clear uptrend, but also very overdue for a correction that could retrace a third of this advance. A normal 1/3 retracement would extend to the 390-395 area and probably feel like the sky is falling.

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

Testing Breakout Zone

IJR

The S&P SmallCap 600 SPDR (IJR) hit a new high last week and then fell back to its breakout zone 112-113. Overall, IJR has pretty much gone nowhere since mid March because it is back below the mid March high. Nevertheless, the triangle breakout is there and it is bullish until proven otherwise. The breakout zone turns first support and a close below 112 would argue for a re-evaluation.

Stuck in Consolidation

KRE

The Regional Bank ETF (KRE) is another ETF that has gone nowhere after a massive advance. KRE hit a new high in mid March and then moved into a narrowing trading range (triangle). Technically, this is a consolidation within an uptrend and a bullish continuation pattern. KRE bucked the broader market on Wednesday with a gain, which suggests that banks may be happy with rising rates. A triangle breakout would end the consolidation and signal a continuation higher. A broad market correction could, however, get in the way.

Failed Pennants and Breakouts

XLF, XLI, XLB, XLP

The Finance SPDR (XLF), Industrials SPDR (XLI) and Consumer Staples SPDR (XLP) broke out of short-term corrective patterns, but these breakouts failed as all three moved lower the last two weeks. The Materials SPDR (XLB) formed a pennant into late May, but did not break out and also moved lower. These failures point to short-term weakness that could evolve into a longer corrective period (1-3 months). The chart below shows XLI with a small falling wedge/pennant, a breakout in mid May and a move below the breakout zone. This decline triggered the ATR Trailing Stop. The failure and short-term decline are not long-term issues, but XLI was up some 25% without a corrective period and could be entering a corrective period now. A 1/3 retracement of the February-May advance would extend to the upper 90s.

The next chart shows the Materials SPDR (XLB) with a pennant and a StochRSI pop at the beginning of June (candlestick chart). This was the early momentum signal for a breakout, but it failed as XLB broke below the pennant lows with a sharp decline the last two weeks. It is now time to wait for the next setup to materialize.

Lower High from May to June?

SOXX, IPAY, BETZ

SPY and QQQ hit new highs early this week and XLK matched its prior high. The Semiconductor ETF (SOXX) and Mobile Payments ETF (IPAY), however, did not reach their April highs and this means they are lagging a bit. The first chart shows SOXX with a rising channel of sorts since late February (higher highs and higher lows). The swing within this channel turned up with the short-term breakout in mid May. Even though the current swing is up, SOXX remains well below its prior high. A break below 425 would reverse this upswing and put in a lower high. This would be medium-term negative and could lead to a test of the rising 200-day.

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

Triangle Breakouts, Short-term Extended

IGV, FDN, CIBR, IBB

ETFs in this next group formed big triangles and broke the upper line of the triangle. All four also exceeded their April highs and forged higher highs. Long-term, these triangle breakouts are promising. Short-term, however, all four became quite extended and ripe for a rest. Personally, I am not interested in a triangle breakout after a double digit advance and would prefer to wait for a better setup. The first chart shows IGV breaking out of the triangle and exceeding the April highs with a 13.5% advance. The setup was the reversal/breakout of the downswing in mid May. Now is the time to monitor price action, plan an exit and/or wait for the next setup.

IBB broke out with a big pop and the consolidation just before the breakout turns into the first support zone to watch should we get a throwback to the breakout zone. A throwback is just a return to the breakout zone, which turns first support, and offers a second opportunity to partake in the breakout. Not every breakout leads to a throwback, but it is something to watch going forward. The blue zone marks throwback support in the low 150s.

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

Wedge Breakout

IHI

The Medical Devices ETF (IHI) was highlighted last week as it firmed within a falling wedge. IHI broke short-term resistance with a big move on the candlestick chart and followed through with a wedge breakout on the bar chart this week. Note that the wedge reversed in the 50-67 percent retracement zone. This means IHI retraced around two thirds of the prior advance, which is normal for a pullback within a bigger uptrend. The red line marks the ATR Trailing Stop for reference and a close below 339 would argue for a re-evaluation.

Failed Short-term Breakouts

COPX, CPER, DBB, SLX, DBA, MOO

The copper-related ETFs, Steel ETF (SLX), DB Agriculture ETF (DBA) and Agriculture ETF (MOO) were hit hard the last three to five days and failed to hold their short-term breakouts. In fact, we are seeing commodities in general correct after big moves. Further strength in the 10-yr yield and US Dollar could also put pressure on commodities so I am holding off on this group for now.

The first chart shows the Copper Miners ETF (COPX) with a StochRSI pop at the beginning of June and no follow through (candlestick chart). The ETF triggered the ATR Trailing Stop on Monday and then fell sharply on Tuesday-Wednesday. COPX is getting very oversold after the sharp five week decline and ripe for a mean-reversion bounce. Unfortunately, metals are reacting negatively to Dollar strength and rising Treasury yields so I would hold off on setups for now.

The next chart shows the DB Agriculture ETF (DBA) with a wedge breakout and StochRSI pop in late May. DBA followed through and this post-breakout gain pushed the ATR Trailing Stop higher. The stop triggered with the sharp decline over the last three days and agriculture is acting like the metals.

Failed Wedge Breakout, Underperforming May-June JETS

The Airline ETF (JETS) is on the verge of negating the falling wedge breakout. For all intents and purposes, this breakout is not working and JETS is seriously lagging the broader market. Note that JETS peaked in mid March and SPY hit new highs here in June. While the falling wedge was deemed a corrective pattern and the breakout was bullish, it has failed as JETS never recovered after the 3-June gap down.

Correcting Hard, Underperforming May-June

ITB, XHB, CUT

The Home Construction ETF (ITB) is leading the prior leaders lower with one of the deepest pullbacks from a new high. ITB was up some 45% a little over a month ago and trading at a new high. The ETF is currently down around 15% from this high and seriously lagging since May. Overall, I still view this is a correction within a bigger uptrend, but the correction shows no signs of abating so I will simply monitor price action.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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