ETF Trends, Patterns and Setups – Large-caps Alone at the Top, Long List of ETFs with Corrections (Premium)

The overall picture is bullish for stocks, but there are some “less strong” pockets. Large-caps are leading with SPY and QQQ hitting new highs in late June. Meanwhile, the Russell 2000 ETF remains below its March high, the S&P MidCap 400 SPDR peaked in late April and the S&P 500 EW ETF has been stuck in a triangle since mid May. The market is not firing on all cylinders, but the BIG cylinders are firing and this is why large-caps are leading.

There are a lot of ETFs that hit new highs in May or June and then corrected with declines below their 50-day SMAs. RSI also dipped into the oversold zone. When the long-term trend is up and price is above the rising 200-day, a break below the 50-day SMA and RSI oversold condition point to a mean-reversion setup that can lead to a bounce. The example below shows DBB with oversold conditions that lasted around two weeks in September-October, January and June (green shading).  

Such a setup can work at least 50% of the time with a 3 to 1 reward to risk ratio (1000 trades). Overall, such setups worked well since the first pullbacks in June 2020. We will see failures at some point, but I am not sure when this will happen. Just be on guard because we could see choppy summer trading and/or a corrective period that extends into autumn.

The ETFs below are above their rising 200-day SMA, below their 50-day SMAs and RSI recently dipped into the oversold zone. The lists are linked to a CandleGlance chart at StockCharts.



This is a rather big group and this is why the percentage of stocks above the 50-day SMA deteriorated recently. This is also why small-caps and mid-caps are lagging large-caps. The broadness of the selling pressure in mid June is a concern because it means we could be entering a corrective period that will extend to other areas. Might be a good time for some vacation!

Here is a video discussing short-term and
long-term breadth indicators for the S&P 500 and sectors.

Vacation Notice

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

  • Vacation from July 5th to July 8th (Monday to Thursday)
  • Short Updates on July 9th and 10th (Friday/Saturday)
  • 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.

SPY Grinds as QQQ Surges

Large-caps are leading the market right now with SPY grinding higher and QQQ surging higher. Tech accounts for 27% of the S&P 500 and the Technology SPDR is also a leading sector right now. The grind in SPY is because other groups corrected in May-June (XLI, XLF, XLP, XLB). The chart below shows SPY touching its rising 50-day SMA and then moving to a new high five times this year. SPY hit another new high this week and the uptrend remains firmly in place.

QQQ is also in an uptrend and leading, but its uptrend is more volatile with wider swings (blue line). The latest upswing began with the short-term breakout on May 20th and QQQ is up around 12% from the May low. RSI is also above 70 and this upswing is getting extended. The red line shows the ATR Trailing Stop for short-term traders. Even though the trend is up and QQQ is leading, I do not see a setup right now and QQQ is in the trend-monitoring phase.

Equal-weight, Mid and Small Stall

The rest of the market is still in a long-term uptrend, but the other major index ETFs are underperforming SPY and QQQ. The S&P 500 EW ETF (RSP) peaked in mid May and formed a triangle (upper left). The S&P MidCap 400 SPDR (MDY) peaked in late April and worked its way lower the last two months (lower left).  The Russell 2000 ETF (IWM) peaked in March, but broke out of a triangle recently (not shown). The Russell Microcap ETF (IWC) peaked in mid March, but broke out of a triangle recently (lower right). The S&P SmallCap 600 SPDR (IJR) is the strongest of the lot because it hit a new high in June, even though it fell back. IJR also has a triangle breakout working (upper right). The green lines mark support to watch going forward.  

Tech, Healthcare and Communication Services Power SPY

The Technology SPDR (XLK), Healthcare SPDR (XLV) and Communication Services SPDR (XLC) account for some 51% of the S&P 500 and all three hit new highs in late June. The Consumer Discretionary SPDR (XLY) accounts for 12.3% and is very close to a new high. We are talking about four of eleven sectors, but these four account for around 63% of the S&P 500.

XLI, XLF and XLB Oversold

The next chart shows three lagging sectors and the Energy SPDR (lower right). XLE held up quite well because it did not break its mid May lows (green line). The ETF is just above support and the rising 50-day SMA, while RSI is mildly oversold. This means XLE could be poised for a bounce. The other three were hit quite hard in mid June, but remain well above their rising 200-day SMAs (long-term uptrends). XLB (upper right) caught my attention because it is the most oversold, it stalled the last week or so and it established a short-term resistance level at 83, a break of which could lead to an oversold bounce.

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 Triangle, Surge, Breakout, Overbought


The Software ETF (IGV), Internet ETF (FDN) and Cybersecurity ETF (CIBR) hit new highs in February, formed big triangles into May, bottomed in mid May and surged to new highs in June. Long-term, these triangles represent big consolidations within even bigger uptrends and the breakouts signal a continuation higher. Short-term, all three advanced over 15% from their mid May lows to their late June highs. This makes them overbought or overextended short-term. The short-term setups and signals triggered in mid May, and the triangle breakouts were around June 9th. These are now in the trend-monitoring phase, both short-term and long-term. This means it is time to plan active positions and/or wait for a short-term setup to materialize. Perhaps a pullback to the rising 50-day will provide a short-term setup.

The Cloud Computing ETF (SKYY) and Biotech ETF (IBB) also formed big triangles, broke out and surged with double-digit moves. They exceeded their spring highs, but did not forge 52-week highs. Nevertheless, the triangles are still big bullish continuation patterns and the breakouts are bullish. They are also short-term overbought and in the trend-monitoring phase.

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

Big Triangle Breakout, New High


Semiconductors are also getting into the action as the Semiconductor ETF (SMH) and Semiconductor ETF (SOXX) hit new highs. Their price charts are slightly different, but they are both leading with new highs and double-digit advances since mid May. SOXX has a rising channel working and a surge to new highs this week. SMH formed a large triangle from late February to late June and broke out to new highs this week.

Consolidation Feb to May, late May Breakout


The Global Auto ETF (CARZ), Self-Driving EV Tech ETF (IDRV) and Autonomous EV ETF (DRIV) consolidated above their rising 200-day SMAs for a few months and then broke out of these consolidations in late May. The breakouts are bullish and argue for a continuation of the bigger uptrend. The chart below shows CARZ surging over 15% and then consolidating above the breakout zone. These ETFs are in the trend-monitoring phase and I do not see setups just yet. Ideally, a deeper dip to the 50-day SMA could provide a setup.

Rising Channel, but No New High


The Mobile Payments ETF (IPAY) is on its own this week because it has a rising channel working since February, but has yet to forge a new high, even though the swing since mid May is up. This one is also in the trend-monitoring phase and I do not see a setup right now. The red line marks the ATR Trailing Stop for short-term traders.

Short Falling Wedge, Breakout


The Home Construction ETF (ITB) setup was featured last week and the ETF broke short-term resistance this week (candlestick chart). Overall, ITB hit a new high, corrected with a falling wedge that  retraced 50% and then broke the wedge line. StochRSI popped above .80 on June 21st and we got some follow through with a resistance break the last two days. This signals an end to the correction and a resumption of the bigger uptrend. The red line on the bar chart shows the ATR Trailing Stop for reference.

Mildly Oversold and Near 50-day


The Aerospace & Defense ETF (ITA) and Uranium ETF (URA) are in uptrends overall and recently pulled back to their breakout zones (thick blue lines). These breakout zones turn into support zones that could lead to a bounce. Both are also near their rising 50-day SMAs and mildly oversold with RSI in the 40-50 zone. The first chart shows ITA with a piercing pattern (candlestick chart) at the rising 50-day. Follow through above 111 would confirm this short-term candlestick reversal and argue for a bigger pennant breakout.

The next chart shows URA testing support and a break back above the rising 50-day SMA would be short-term bullish.

Multi-week Correction, Below 50-day, StochRSI Pop


ETFs in this group are also part of the correction group. These are ETFs that are above their rising 200-day SMAs (long-term uptrend), below their 50-day SMAs (short-term correction) and with RSI dipping into the 30-50 zone (oversold). The first chart shows the Healthcare Providers ETF (IHF) with a new high in May and pullback into mid June. The ETF bounced last week to trigger a StochRSI pop and followed through this week with a short-term resistance breakout. The bar chart shows the ATR Trailing Stop for reference.

The next chart shows the Steel ETF (SLX) with a similar setup: new high in May, pullback into mid June, bounce last week. Note that the Metals & Mining SPDR (XME) is 44% steel stocks and will likely move the same direction as SLX.

The DB Agriculture ETF (DBA) exploded higher with a 4.5% move the last three days. DBA also corrected from mid May to mid June, but already popped with this week’s surge and is back above its 50-day.

The Agribusiness ETF (MOO) is positively correlated to DBA and formed a falling flag since mid May. The candlestick chart shows a StochRSI pop last week. The red line on the bar chart shows the ATR Trailing Stop for reference.

Metals ETFs Attempt to Firm


The industrial-metal related ETFs have similar setups: above their rising 200-day SMAs, below their 50-day SMAs and RSI dipped into the oversold zone. There is some concern here because they were hit exceptionally hard from mid May to mid June and the Dollar surged in June.

The chart below shows the Copper Miners ETF (COPX) falling over 20% from its May high. Of course, the ETF was up over 100% from late October to mid May. Big advances deserve big corrections. COPX fell back to its March lows (blue zone) and RSI became seriously oversold (<30). The ETF got a small oversold bounce to the 38 area and then edged lower the last few days. A move above 38 would break falling channel resistance and signal an end to this correction. Keep in mind that COPX has above average volatility and risk!

Big Wedge Breakout, Pennant Breakout, Near 200-day


The Global Clean Energy ETF (ICLN), Clean Energy ETF (PBW) and Biotech SPDR (XBI) corrected hard from February to May with big falling wedges. They broke out of these wedges with advances since mid May and are now back near their 200-day SMAs. I was watching these short-term because bullish pennants formed and all three broke out last week. The green lines mark first support at the pennant lows and a break of these lows would call for a re-evaluation.

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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