ETF Trends, Patterns and Setups – Downtrend Signals Expand and Hit Key Groups, Tech ETFs Hold Up Relatively Well (Premium)

ETF Ranking and Trend Table Highlights

After a dozen new uptrend signals in late August and early September, the tide changed as the S&P 500 experienced its first 4-5 percent pullback since May. This pullback was enough to reverse some of the new uptrend signals and there were 14 new downtrend signals over the last five days. I am referring only to the 113 equity-related ETFs. All told, there are 67 uptrends (59%) and 46 downtrends (41%). The majority of equity-related ETFs are in uptrends, but we are seeing some new downtrends in some key groups, such as Industrials, Infrastructure, Housing, Banks and Insurance.

The tech-related ETFs are still holding up rather well. The image below shows the top 28 ETFs in the core list, as ranked by their StochClose values. The Dry Bulk Shipping (BDRY) is the strongest and the closest to a 52-week high. We are also seeing strength in India (INDA) and Energy (DBE). A dozen of the tech-related ETFs have StochClose values above 80 and they have weathered the recent storm rather well (green outline). Even so, note that the 20+ Yr Treasury Bond ETF (TLT) and the Dollar Bullish ETF (UUP) are also strong and these two are usually associated with the risk-off trade (yellow outline).

New Downtrend Signals in ITB, IFRA and KBE

StochClose (125,5) measures the location of the close relative to the closing high-low range over a 125-day period (~6 months). The raw indicator is smoothed with a 5-day SMA to reduce whipsaws. Price is clearly in the lower half of its six month range when StochClose is below 40 (bearish) and in the upper half of its six month range when StochClose is above 60 (bullish). Thus, ETFs with new bearish signals are in the lower half of their six month range (since March 23rd). The indicator and the settings are not perfect, but they do tell us when the six month cup is half full (bullish) or half empty (bearish).

The chart above shows the Home Construction ETF (ITB) with the bullish StochClose signals (green arrows) and bearish signals (red arrows). The most recent signal lasted from May 26th 2020 to September 22nd 2021 (337 days) and produced a gain of 58.5%. StochClose is now bearish because ITB is in the lower half of its six month range. The ETF peaked in May, formed a lower high in August and is clearly lagging SPY, which hit a new high in mid September. A 33% retracement of the advance from March 2020 to May 2021 would extend to the 60 area. Take price targets with a grain of salt because market dynamics can change.

The next chart shows the Infrastructure ETF (IFRA) trading flat since May and StochClose triggering bearish with a move below 40 this week.  

The next chart shows the Bank SPDR (KBE) peaking in mid March, working its way lower the last few months and StochClose triggering bearish this week.

The three ETFs above represent some important groups for the broader market and the economy: infrastructure, housing and regional banking. There are also downtrend signals in the Materials SPDR (XLB), Copper ETF (CPER), Global Timber ETF (CUT), Insurance ETF (KIE) and Russell 2000 ETF (IWM). Tech is still holding up and this sector accounts for 28% of the S&P 500, but we are clearly seeing weakness in many other parts of the market.

SPY Corrects Rather Hard

The S&P 500 SPDR (SPY) is still in an uptrend overall, but the current pullback pushed RSI below 40 and the Momentum Composite to -5 for the first time since late October. SPY, of course, bottomed in late October and these oversold conditions preceded a big surge in November. However, don’t forget that SPY fell sharply the first three weeks of September 2020, bounced into mid October and then fell into late October. All told, SPY corrected with a triangle that lasted eight to nine weeks.

The current pullback is still considered a correction within the bigger uptrend, but selling pressure over the last three weeks looks more like September 2020 than mid March or mid May 2021 (flag and pennant). Thus, we could see more corrective price action before this corrective process runs its course. A 25-33 percent retracement of the prior advance and test of the rising 200-day would extend to the 410-420 area.

The Nasdaq 100 ETF (QQQ) also remains in an uptrend with new highs from July to early September. The advance became a little stretched in early September and QQQ fell rather sharply the last couple weeks. QQQ became short-term oversold with RSI dipping below 40 and the Momentum Composite dipping to -4 on Monday. This is a short-term mean-reversion setup as the ETF bounces off the 33% retracement and mid August low. As with SPY, selling pressure was intense during this pullback and this leads me to believe that a bigger correction is unfolding with a target in the 350-355 area (channel line and 50% retracement).

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

Trend Indicators and Trading Ranges Do Not Mix

As the name suggests, trend indicators work best when ETFs trend and whipsaw when ETFs trade sideways. StochClose is whipsawing for the S&P SmallCap 600 SPDR (IJR) and Russell 2000 ETF (IWM) because these two remain locked in choppy trading ranges. The chart shows IWM trading within a range since March 2021 and three StochClose signals within the last two months (upper left). There is nothing to do here except focus on the swings within the range. IWM actually held up better than SPY or QQQ on the recent pullback because RSI did not dip below 40 and the Momentum Composite did not hit -3. The candlestick chart shows IWM with a downswing and a StochRSI pop above .80 on Wednesday. A follow through breakout at 223 would be short-term bullish.

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

ETFs that hit new highs in early September and became mildly oversold this week are holding up the best right now. They are leading with the new highs and selling pressure was less during the pullback. The tech ETFs are front and center. Namely, RSI(14) did not exceed 40 during the pullback and the Momentum Composite did not hit -3. RSI is considered mildly oversold when in the 40-50 zone. Some of these ETFs also formed bullish flag patterns the last 12 days and StochRSI dipped. Flag breakouts and/or StochRSI pops above .80 would provide the first bullish sign that the short pullback is reversing. Careful here because an extended correction in SPY would likely lead to failed breakouts and whipsaws.

You can learn more about falling wedge patterns in this video.

Steady Uptrend and Mildly Oversold IYR REZ

REITs are also holding up relatively well with new highs in early September and mild oversold readings this week. The next chart shows the REIT ETF (IYR) with a steady uptrend in 2021 and  four consolidations along the way (blue lines). IYR pulled back to its rising 50-day SMA this week and RSI dipped into the 40-50 zone to become mildly oversold. The candlestick chart shows a short-term resistance level at 108.3 and a breakout here would be short-term bullish.

The Mortgage Real Estate ETF (REM) is now as strong as the two REITs above, but it remains in an uptrend (barely as StochClose dipped to 40.7 last week). Nevertheless, the cup is half full and I am seeing breakouts on two timeframes. The bar chart shows a triangle consolidation and breakout in late August. The candlestick chart shows a short-term falling wedge pullback and breakout on Wednesday.

The Momentum Composite aggregates signals in five momentum indicators. RSI(10) is oversold below 30 and overbought above 70. 20-day StochClose is oversold below 5 and overbought above 95. CCI Close (20) is oversold below -200 and overbought above +200. %B (20,2) is oversold below 0 and overbought above 1. Normalized ROC (20) is oversold below -3 and overbought above +3. Normalized ROC is the 20-day absolute price change divided by ATR(20). -3 means three of the five indicators are oversold and +3 means three of the five are overbought.

The Momentum Composite and StochClose are part of the TIP Indicator Edge Plugin for StockCharts ACP. Click here for more details.

The Energy SPDR (XLE), Oil & Gas Equipment & Services ETF (XES), Oil & Gas Exploration & Production ETF (XOP) and MLP ETF (AMLP) are in downtrends, but the Natural Gas ETF (FCG) triggered a bullish StochClose signal five days ago. On the bar chart, FCG reversed near its rising 200-day SMA and broke out of a falling wedge pattern. Keep in mind that this is a low priced ETF with above average volatility. It is also up some 25% since late August.

The Copper Miners ETF (COPX) and Copper ETF (CPER) are in downtrends and off my radar. This is probably connected to recent weakness in Chinese ETFs and the Core Emerging Markets ETF (IEMG). These are also off my radar because they are in downtrends and seriously lagging ETFs that are in uptrends. The DB Base Metals ETF (DBB) is an exception because aluminum hit a new high this week and Zinc hit a new high on September 10th. In contrast, copper peaked in mid May and fell the last four months. The chart shows DBB breaking out of a triangle, falling back to this breakout zone and bouncing on Wednesday.

The DB Agriculture ETF (DBA) is in an uptrend overall and the ETF became short-term oversold last week. DBA did not hold its initial bounce, but the short-term bullish setup remains. Note that RSI became modestly oversold and the Momentum Composite dipped to -3 and -4. The candlestick chart shows a steep falling wedge and a StochRSI pop with Wednesday’s bounce. A follow through breakout at 18.8 would be short-term bullish.

The Water Resources ETF (PHO) hit a new in early September and then fell with the rest of the market. The overall trend is up and PHO is oversold because RSI was between 30-40 and the Momentum Composite hit -3 twice. This is setting up for an oversold bounce, but I am concerned that we could see a correction that extends for several weeks. Note the triangles in January-February and May-June. Oversold conditions still represent mean-reversion setups, but we could see choppy price action for a few weeks and another test of the lows after a bounce.

The Global Auto ETF (CARZ), Autonomous EV ETF (DRIV) and Autonomous EV ETF (DRIV) are in uptrends overall and all three became oversold on Monday as the Momentum Composite dipped to -3 or lower. All three bounced the last two days to keep these choppy uptrends alive. The chart below shows the Self-Driving EV Tech ETF (IDRV) with a very choppy zigzag higher since March. This advance is so choppy that the ETF gets its fair share of oversold readings (five since May). These oversold readings do not always mark the exact low, but IDRV managed to bounce each time.

There were new uptrend signals from late August until mid September in the following ETFs:

  • Solar Energy ETF (TAN)
  • Clean Edge Green Energy ETF (QCLN)
  • ARK Fintech Innovation ETF (ARKF)
  • ARK Genomic Revolution ETF (ARKG)
  • ARK Innovation ETF (ARKK)
  • ARK Autonomous Tech Robotics ETF (ARKQ)
  • ARK Next Gen Internet ETF (ARKW)
  • ARK 3D Printing ETF (PRNT)
  • Space ETF (UFO)
  • Sports Betting iGaming ETF (BETZ)
  • Wind Energy ETF (FAN) – failed
  • Video Games eSports ETF (ESPO) – failed
  • CandleGlance link to charts

These are high-flying high-beta ETFs with above average risk because they have above average volatility. I covered several of these ETFs in Tuesday’s commentary as they became short-term oversold after their uptrend signals. These oversold conditions represent a pullback within the uptrend.

FAN and ESPO triggered bearish StochClose signals because they fell rather hard. The chart below shows ESPO with StochClose triggering bearish on Monday as the ETF tested the August lows. Chartists can consider an immediate exit or placing a last ditch hope stop-loss just below this low (blue line).

The next chart shows FAN with a bearish StochClose signal on Tuesday, even as the ETF opened strong and broke a short-term trendline on the candlestick chart. Perhaps this will be another whipsaw. Chartist can consider placing a stop-loss just below Monday’s low (last ditch hope line).

Small Micro Caps: IJR, IWM, IWC

Sectors: XLI, XLE, XLB

Industrial-related: IFRA, ITA, XAR, IYT, JETS

Energy: XES, XOP, AMLP


Finance: KRE, KBE, KIE

Steel: SLX (XME is close 40.3)

Consumer Discretionary: ITB, IBUY


Clean Energy: PBW, ICLN, FAN

Cannabis: YOLO, MJ

Vid Games eSports:  ESPO, HERO, GAMR

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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