ETF Trends, Patterns and Setups – Metals, Energy and Banks Lead, Industrials and Materials Perk Up, Uptrend Signals in Clean Energy (Premium)

SPY and QQQ ended their corrections with breakouts last week and this is bullish for the broader market. Small-caps (IJR) are also making a breakout bid as strength within the market broadens. In particular, we are seeing leadership from ETFs associated with industrial metals, copper, uranium, rare metals, lithium and energy leading this month (8+ percent gains). We are also seeing short-term breakouts in the Infrastructure ETF and Materials SPDR. There were new highs in the banking and insurance ETFs this week, as well as some of the tech-related ETFs. Overall, we are seeing broad strength within the stock market and this is bullish.

Broad Market ETFs

The S&P 500 SPDR (SPY) remains in a long-term uptrend and the short correction ended last week with a wedge breakout on strong breadth. SPY fell around 5% with the falling wedge and did not even test its rising 200-day SMA. The ETF gapped up on October 7th (Thursday two weeks ago) and then edged lower before gapping up again on October 14th (Thursday last week). This gap was different as SPY closed strong and Advance-Decline Percent exceeded +80% (green arrows/bars). SPY continued higher this week and the breakout remains valid as long as last week’s low holds (431).

QQQ is keeping pace with SPY as the ETF also corrected and broke out with a strong move last Thursday. QQQ was up some 20% from mid May to early September and then fell around 8% in four weeks (early Sept to early October). This declined retraced around half of the prior advance, which is pretty normal for a correction (two steps forward and one step backward). Last week’s breakout ends the correction and signals a continuation of the bigger uptrend. Notice that there was a StochRSI pop two days after the harami formed (green line). Last week’s low is the first support level to watch for signs of failure (356).

Small-caps are also going for a breakout with the S&P SmallCap 600 SPDR (IJR) closing above the triangle line with a modest gain on Wednesday. Within the triangle, the ETF bounced in late September, formed a small bull flag into early October and broke out of the flag two weeks ago. The breakout has been shaky, but it held more or less. The triangle is viewed as a big consolidation after a big advance. A consolidation within an uptrend is a bullish continuation pattern and this breakout bodes bullish.

The bottom window shows StochClose with whipsaw signals, which happen to trend-following indicators during a trading range. Trend indicators work when trends develop and whipsaw during trading ranges. The red line on the chart shows IJR finding support near the rising 200-day day. StochClose covers 125 days and the 200-day SMA covers a longer timeframe. I noticed several charts with the rising 200-day SMA marking support in September-October. These include MDY, IWM, IWC, XLI, XV, XLU, SKYY, FINX, FDN, IGN, BOTZ, SOXX, SMH, ITB, XHB, KBE, KRE, KIE, ITA, IFRA, XME, SLX, CPER, DRIV, CARZ, IDRV, PAWZ and UFO.

Large Consolidation, Breakout, New High, Leading


The finance-related ETFs are leading the market with the Finance SPDR (XLF) breaking out of a bullish cup-with-handle and hitting a new high this week. The Regional Bank ETF (KRE) and Bank SPDR (KBE) broke out of large triangle consolidations in late September and these breakouts held as prices moved higher the last three weeks. KRE and KBE both recorded new closing highs on Wednesday. The Insurance ETF (KIE) was a little late to the party with a mid October triangle breakout. Nevertheless, the ETF hit new highs this week and is leading.

The Agribusiness ETF (MOO) broke out this week and hit a new high. This is another one of these ETFs with a long sideways consolidation after a big advance (+45%). At the triangle low, MOO had retraced just 25% of the prior advance and the dotted lines show a falling channel. MOO broke out of the channel, but did not really follow through and remained range bound. Overall, the triangle is still a consolidation within an uptrend and considered a bullish continuation pattern. The breakout and new high bode well and argue for further gains.

New High, Leading

XLE, FCG, XOP (new signals in XES, AMLP)

Energy-related ETFs are also leading the market with new highs in the Energy SPDR (XLE), Natural Gas ETF (FCG) and Oil & Gas Exploration & Production ETF (XOP) this week. All three broke out of falling wedge patterns in September and are up around 12% here in October. They are extended, but by no means weak.

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

The Oil & Gas Equipment & Services ETF (XES) was a little late to the party and did not break out until late September. StochClose also turned bullish five days ago with a move above 60. Also notice that price is back above the rising 200-day SMA. Overall, the trend is up and the breakout is bullish. As such, I would expect a move to new highs.

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

Metals remain strong with the DB Base Metals ETF (DBB) hitting a new high on Monday, copper-related ETFs breaking out this week and short-term breakouts in LIT, REMX and URA. The first chart shows DBB breaking out of a smaller triangle on October 7th and StochRSI popping above .80 that very same day. The Momentum Composite did not become oversold for a setup, but the triangle was a short-term bullish continuation pattern and the StochRSI pop provided the momentum trigger for the breakout.

The next chart shows the Copper ETF (CPER) with a short-term breakout on October 11th (red resistance) and a long-term breakout last week. The falling wedge retraced one third to one half of the prior advance and CPER ultimately held the rising 200-day SMA. The breakout is long-term bullish and I would expect new highs to follow.

The next chart shows the Copper Miners ETF (COPX) lagging copper a bit, but there is also a breakout in play. Short-term, there was a breakout within the falling wedge (October 11th). Long-term, the wedge breakout signals an end to the corrective period and a resumption of the bigger uptrend.

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

Channel Breakouts, Close to 52-week High, Leading


The Electric Vehicle ETF remain with choppy uptrends since March and all three are very close to new 52-week highs after breakouts. The chart below shows the Autonomous EV ETF (DRIV) with a choppy rising channel (green lines) and some choppy pullbacks within the rising channel. Yep, it is one choppy affair. Even so, StochClose remained bullish the entire time because the ETF continued to work its way higher. Oversold readings (green arrows) identified pullbacks within this uptrend. Most recently, DRIV pulled back with a falling channel from mid August to early October and broke out with a surge here in October.

Several key groups came to life this week with short-term breakouts within longer corrective patterns. These ETFs peaked in May-June and fell into September. Even though the downtrends lasted three to five months, the declines appear to be more like corrections after big advances. As such, I was watching for a short-term breakout within these big corrective patterns. This strategy is timing the shorter swing within the bigger pattern. We can get a jump on a bigger breakout by acting on a short-term bullish signal within the larger corrective pattern.

The chart below shows the Infrastructure ETF (IFRA) rising 58% in seven months and hitting a new high in May. The ETF then declined around 8% from May to September and this decline retraced around a quarter of the prior advance. An 8% decline and 25% retracement are hardly extreme. IFRA found support near the July low in September and broke short-term resistance last week. This is the breakout within the bigger corrective pattern and this breakout increases the chances of a bigger breakout in the 37 area.

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 (10) is oversold below -3 and overbought above +3. Normalized ROC is the 10-day absolute price change divided by ATR(10). -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.

ETFs in this group were leading the market a little over a month ago, but got hit pretty hard with the September pullback. Nevertheless, the declines were viewed as corrections within bigger uptrends and the retracements were pretty normal. The first chart shows the Healthcare SPDR (XLV) retracing one third to one half of the prior advance, firming around 125 and breaking out with a surge the last two days. There was also a StochRSI pop just prior to the breakout. The second chart shows the REIT ETF (IYR) breaking out last week.

The Technology SPDR (XLK) and several of the tech-related ETFs are leading the market here in October with five to nine percent advances the last fourteen trading days. These ETFs sport similar patterns: new highs in late August or early September, pullbacks into early October, harami patterns on October 5th, long white candlesticks on October 6th and then gap-breakouts on October 7th. They all extended after their breakouts with SKYY, CIBR and IGV hitting new highs this week. There is no setup right now as these are all in the trend-monitoring phase. It is time to manage current positions and/or wait for the next setup. The chart below shows the Software ETF (IGV) with these characteristics. Also notice the RSI W breakout on October 6th and the StochRSI pop on October 8th.

The Aerospace & Defense ETF (ITA) and Transports ETF (IYT) are part of the industrials sector and both ETFs are breaking out after long corrections. ITA formed a flat falling wedge that retraced a third of the prior 52% advance and broke out two weeks ago. Follow through has been limited, but the breakout is holding. IYT sports a deeper correction with a  33-50 percent retracement. The ETF found support near the rising 200-day and broke out last week.

I featured the Clean Edge Green Energy ETF (QCLN) and Solar Energy ETF (TAN) last week as they forged higher lows from May to October and made breakout bids. The first chart shows QCLN with a 32% surge in May-June and then a two thirds retracement into July. The ETF found support around 60 and then formed a triangle from July to early October. This is a rather long triangle (14+ week consolidation) considering the prior 32% advance (7 weeks). Nevertheless, a higher low formed from May to October and the surge off the October low was quite strong as the ETF broke out of the triangle and exceeded the early September high. This breakout signals a continuation of the 32% surge and argues for further gains.

Note that this ETF and other ETFs with above average volatility carry above average risk. Traders can consider smaller position sizes to account for the added risk or wait for a pullback (short-term oversold condition).

The next chart shows the Global Clean Energy ETF (ICLN) with one of the newest StochClose signals. Keep in mind that StochClose (125,5) only looks at the last 125 trading days, which extends from April 23rd (blue line) to October 21st. StochClose measures the location of the close relative to the high-low range over this period (with 5-day smoothing). When StochClose moves above 60, price is firmly in the upper half of its 125-day range and this signals an uptrend. Trend following signals always lag and the chance of whipsaw is around 60%, which is also normal for a trend signal.

Returning to the price chart, I am impressed that ICLN established support in the 20.40-21.50 area from early March to early October. This looks like a big base and ICLN is challenging range resistance, a break of which would be bullish.

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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