ETF Trends, Patterns and Setups – REITs and Energy Lead, XLK Hits Retracement, COPX Holds Breakout (Premium)

REIT and energy ETFs are leading the market right now as ETFs in these groups surged to new highs. Some old economy ETFs are not far behind with the Finance SPDR, the Metals & Mining SPDR and the Global Auto ETF also hitting new highs.

The S&P SmallCap 600 SPDR is trying to catch up with a triangle breakout over the last few days. Let’s see if it holds. SPY and the S&P 500 EW ETF remain in steady uptrends, but they are in the middle of their channels, which means they could go either way short-term and still remain in long-term uptrends. May was largely flat and the seasonal patterns for June are slightly negative. 

The Technology SPDR and Nasdaq 100 ETF surged off their mid May lows, but hit a short-term resistance zone. Downturns in these two could affect the other tech-related ETFs. Also note that the Global Clean Energy ETF and ARK Innovation ETF are testing the underside of their 200-day SMAs after oversold bounces.

Programming Note: The trend-following shoot out will be posted early next week. This article will put 10 trend-following indicators and the Trend Composite to the test using the All Weather ETF list and the S&P 500.

Surge to New Highs


Spot Crude broke out to a multi-year high on the line chart and July Futures (upper left chart) broke rim resistance from a cup-with-handle pattern. As noted in Friday’s commentary, this is a bullish continuation pattern and the breakout signals a continuation of the prior advance (November to March). This targets a move to the upper 70s for crude.

Unsurprisingly, all of the energy related stocks are going bananas with the Oil & Gas Equipment & Services ETF (XES) leading the way (+8.5% on Wednesday). XES broke out of a falling wedge in early May and held the ATR Trailing Stop as it consolidated with a pennant. The candlestick chart shows a StochRSI pop above .80 on Tuesday as XES broke the pennant line.

The Real Estate SPDR (XLRE), Residential REIT ETF (REZ), Communication Services SPDR (XLC) and Utilities SPDR (XLU) were featured on May 20th with falling flags. Three of the four broke out and hit new highs, but XLU remains in corrective mode. The blue arrows show that I drew through the 10-Ma highs to identify the falling flags in XLRE and REZ. Patterns are not always perfect. It is simply important that we capture the essence of the pattern. A falling flag is a short-term consolidation that forms after a sharp advance. XLRE and REZ where up 11-12% and then fell back with a zigzag consolidation (falling flag). RSI was also short-term oversold at the time (30-50 zone). XLU did not break out, but the ETF is still setting up bullish as it flirts with the 33% retracement and 50-day SMA. A breakout at 66 would be bullish.

Consolidation Breakout, New High


The Global Auto ETF (CARZ) offers a great lesson on the importance of the bigger trend. The bar chart shows CARZ breaking out of a triangle in mid April, but failing to hold this breakout and falling below the late January low in mid May (green line). Despite this “failed breakout”, sharp decline and down gap on 11-May, the ETF was still well above the rising 200-day SMA and still consolidating after a massive advance (62%). A consolidation after a sharp advance is normal and these consolidations can get noisy. One or two signals may fail, but we should keep these ETFs on our radar because they are still consolidating within uptrends. The candlestick chart shows the downswing reversing with a StochRSI pop on 14-May and a short-term breakout on 21-May. Follow through was strong as CARZ broke out to new highs this week.

SPY and RSP Maintain Steady Uptrends

Now we get to the ETFs that did not hit new highs this week. They are still in uptrends, but not quite as strong as the ETFs above. The first charts shows SPY and the S&P 500 EW ETF (RSP). SPY represents large-caps and RSP represents the average stock in the S&P 500. Both are in steady uptrends and within spitting distance of new highs. Most recently, RSI dipped into the oversold zone in mid May as both tested their rising 50-day SMAs. Both bounced the last two weeks and are currently in the middle of their rising channels, not too hot and not too cold.

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

Short-term Consolidation Near New High


The Consumer Staples SPDR (XLP) and Materials SPDR (XLB) hit new highs in May and then consolidated with pennants. XLP sports a tighter pennant on the candlestick chart and a breakout last week. A redraw shows a slightly wider pennant on the bar chart. Either way, they represent short-term consolidations within an uptrend and they are bullish continuation patterns.

Short-term Breakout within Consolidation


ETF in this group are consolidating within long-term uptrends and they recently reversed their downswings within these consolidations. They have yet to break out of the big consolidations and are just short of new highs. The Sports Betting iGaming ETF (BETZ) is similar to CARZ: a short-term breakout/reversal within a bigger consolidation. Notice that there was also a failed breakout and support break just before the most recent advance. Even after short-term failures, we need to keep ETFs with long-term bullish charts on our radar. The candlestick chart shows a breakout and StochRSI pop on May 20th. BETZ followed through and a consolidation breakout would result in a fresh 52-week high.  

Triangle Consolidation, Break Out


The Regional Bank ETF (KRE) broke out in late April and is holding this breakout without much of an extension. It is not pretty, but the breakout is holding as long as the ATR Trailing Stop holds.

The S&P SmallCap 600 SPDR (IJR) is getting into the action with a triangle breakout and move above the late April high. This is technically bullish because it signals an end to the consolidation and a resumption of the bigger uptrend. It is bullish until proven otherwise. A strong breakout should hold and we should see follow through. A close below 112 would fill last week’s gap and question the robustness of the breakout.

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

Wedge Correction, Breakout


The Airline ETF (JETS) extended on its wedge breakout with further gains the last four days. This breakout is bullish and signals a continuation of the bigger uptrend. JETS established short-term support with a little dip just after the breakout and this level can be used for a re-evaluation (close below 25.7).  

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

Oversold, Short-term Breakout


The Copper Miners ETF (COPX), Steel ETF (SLX) and DB Agriculture ETF (DBA) corrected in mid May by retracing 33-50% of the prior advance and pushing RSI into the oversold zone (30-50). All three bounced over the last five days as RSI moved out of its oversold zone and StochRSI popped (surge above .80). The long-term trends were already up and these pullbacks represented a short correction. The breakouts signal an end to the correction and a resumption of the bigger uptrend. The red lines show the ATR Trailing Stops for reference.

Hit Hard after Oversold Bounce


The Home Construction ETF (ITB) and Medical Devices ETF (IHI) got oversold bounces off their rising 50-day SMAs, but were hit hard the last two days. The first chart shows IHI failing to hold the breakout as it plunged below 340 on Tuesday. A look through the top ten components shows ABT, TMO and DHR falling 5-8% over the last two days. The other seven components were also down the last two days and this shows widespread selling pressure within the group. IHI is still in a long-term uptrend, but this short-term setup failed and it is time to move aside and wait for the next setup to materialize. Top ten: ABT, TMO, MDT, DHR, ISRG, SYK, BSX, EW, BDX, IDXX.

ITB broke out and fell back to the breakout zone the last two days. This is the first test of robustness because a strong breakout should hold. A close below 70 would negate this breakout and put ITB back on the watch list. The long-term trend remains up, but a failed breakout would suggest that more correction may be needed before the next leg higher.

Short-term Flag, Moment of truth


The Nasdaq 100 ETF (QQQ) is in a long-term uptrend with a new high in April and a higher low here in May. On the bar chart, the ETF firmed in the 50-67 percent retracement zone in mid May and broke short-term resistance with a bounce two weeks ago. This breakout is holding, but QQQ is hitting a potential short-term reversal zone. The candlestick chart shows QQQ hitting the gap zone and 67 percent retracement area last week (red shading). QQQ stalled the last six days and a break below 331 would start a move lower.

The Technology SPDR (XLK) sports a similar chart, but here we can see the potential for a high-and-tight flag, which is a short-term bullish continuation pattern. The candlestick chart shows that XLK is also trading in a potential reversal zone based on the support break, gap and 67 percent retracement. XLK surged to this zone and then consolidated. A flag breakout would be bullish and negate this reversal zone. Conversely, a break below Tuesday’s low would affirm this reversal zone and be short-term bearish.

Short-term Breakout within Wide Rising Channel


The Semiconductor ETF (SOXX) and Mobile Payments ETF (IPAY) are in uptrends that turned more volatile the last few months as the range of highs and lows expanded. Nevertheless, the green dashed lines show the rising channels over the last few months. The swing within these channels turned up with breakouts two weeks ago and these breakouts are holding. Note that while XLK stalled with a flag, SOXX and IPAY moved higher the last six days. The red lines show the ATR Trailing Stop for reference.

Short-term Breakout within Larger Triangle


ETFs in this group formed large triangle consolidations above their rising 200-day SMAs. Thus, they are in long-term uptrends and consolidations within uptrends are viewed as bullish continuation patterns. These ETFs reversed the short-term downswings within these patterns after breakouts two weeks ago and these breakouts held. The ATR Trailing Stops are shown for reference.

Battling to Hold 200-day SMA


There is no real change in the Biotech ETF (IBB) as it continues to bounce off the rising 200-day SMA. In contrast, the Biotech SPDR (XBI) is below the 200-day SMA and underperforming IBB. Overall, the cup is still half full for IBB because the most recent bounce off the 200-day is holding. The candlestick chart shows reason to watch carefully because the bounce retraced around 67 percent of the prior decline and formed a rising wedge. RSI is also having trouble in the red zone (50-60). A break below 149 would be negative.

Hitting the Underside of the 200-day


ETFs in this group are lagging the broader market because they forged lower lows form March to May and are below their 200-day SMAs. Tactically, all four bounced the last few weeks and tested the underside of their 200-day SMAs as RSI hit the overbought zone (50-70). Also notice that all four are also testing their falling 50-day SMAs. These ETFs are looking vulnerable because I would expect an oversold bounce within a bigger downtrend to fail near the 200-day and with RSI in the oversold zone. Also notice that the bounce retraced 50-67 percent of the prior decline.

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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