ETF Trends, Patterns and Setups – Semis in Top 5, Pullbacks Create Mild Oversold Conditions, A Few Failed Breakouts (Premium)

The broad market environment remains bullish for stocks and the vast majority of equity related ETFs are in uptrends (bullish StochClose signals). Even so, I remain concerned with the broader market environment because breadth continues to deteriorate and a number of ETFs peaked months ago. The Russell 2000 ETF peaked in March, the Industrials SPDR, Home Construction ETF and Regional Bank ETF peaked in May, and the Global Auto ETF and Metals & Mining SPDR peaked in early June. Furthermore, the 20+ Yr Treasury Bond ETF (TLT) broke out of its bull flag with a big move this week and this shows money moving into safe-haven bonds.  See Friday’s commentary for details.

ETF Ranking and Trend Table Highlights

Of the 113 equity-related ETFs, there are 80 uptrends (70.8%) and 33 downtrends (29.2%). There is an extra ETF because I added the Sports Betting iGaming ETF (BETZ) to the lineup. Over the last three weeks, we saw new uptrend signals for a number of high-beta ETFs (ARKK, BETZ, FAN, UFO, URA, ESPO). There were new downtrend signals in the Aerospace & Defense ETF (ITA) and Transports ETF (IYT).

The Solar Energy ETF (TAN) is the newest uptrend signal as StochClose crossed above 60 on Wednesday. The chart below shows this signal in the upper left. TAN surged some 450% from March 2020 to February 2021 and then retraced around 50% of this advance with a 40+ percent decline. A big falling wedge formed and TAN broke the wedge line in June. A smaller wedge formed in July-August (bar chart) and the ETF is making an attempt to break out of this pattern as well. The candlestick chart (lower left) shows a surge and bull flag. A breakout at 86 would be short-term bullish.

The next table section shows the Top 20 as ranked by their StochClose value. The column on the far left (Count Rank) is fixed and I clicked on the StochClose heading for the sort. Using the “Count Rank” column, we can easily see the top 20. The green shading shows the Semiconductor ETF (SMH) and Semiconductor ETF (SOXX) in the top 5 as both hit new highs this week. Notice that the 52wk Range column shows a value of 100, which means a new closing high. The DB Energy ETF (DBE) is number 9 and also closed at a new high.

The standard disclaimers apply to these trend-following signals. The signals lag, there will be whipsaws and some 60% of signals result in losses. Of the 40% that result in winners, they average gain is usually three or more times the average loss and this is what makes the strategy profitable over time (1000 trades). Past performance does not guarantee future performance.

New High this Week, Leading, Choppy Uptrend


Semis are not exactly on a tear, but the SMH and SOXX are leading the market with new highs in early August, late August and mid September. Both ETFs are in choppy uptrends, but these uptrends tightened in June as the dips became shallower. The chart below shows RSI(14) dipping just below 50 in mid June and touching 40 in mid July and mid August. These were mild oversold conditions because the dips were not that deep.

Below is a video discussing SOXX and three stock setups (TXN, AMD, QRVO).

Triangle Breakout early Sept, New High this Week

DBB, LIT (plus CPER)

The DB Base Metals ETF (DBB) hit a new high with a breakout surge in early September. Overall, a triangle formed within an uptrend and this is a bullish continuation pattern (rest within uptrend). The ETF broke out because zinc and aluminum are hitting new highs. Note that DBB is equal parts zinc, aluminum and copper. Copper has been lagging lately and StochClose is bearish for the Copper ETF (CPER). Nevertheless, DBB got two nice oversold bounces in June and August, and the recent breakout is medium-term bullish.

The next chart shows the Copper ETF (CPER) taking a dive in mid August and StochClose triggering bearish on August 18th. I viewed the decline from June to early August as a bullish consolidation within a bigger uptrend, but StochClose could not absorb the dive without triggering bearish. CPER did hold the rising 200-day and the line chart (upper left) shows a big falling wedge correction. Thus, perhaps copper is poised to break out of this wedge and extend higher.

The standard disclaimers apply to these trend-following signals. The signals lag, there will be whipsaws and some 60% of signals result in losses. Of the 40% that result in winners, they average gain is usually three or more times the average loss and this is what makes the strategy profitable over time (1000 trades). Past performance does not guarantee future performance.

Short Pullback after New High and Big Run


ETFs in this next group are leading the market with new highs in September and big runs since mid May – up between 13 and 21 percent over the last 90 days. These ETFs pulled back over the last seven days, but RSI did not dip below 50 and did not become even mildly oversold (40-50 zone). Thus, we do not really have mean-reversion setups working for these eight ETFs. Overall, these ETFs are quite extended on the medium-term timeframe (four months) and ripe for a longer rest or corrective period.

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

Steady Uptrend, RSI in 40-50 Zone This week


ETFs in this group are in steady uptrends with lower volatility than ETFs in the group above. These uptrends are quite tight and narrow, as opposed to wider and more volatile. All eight pulled back the last seven days and RSI dipped into the 40-50 zone to become mildly oversold. Dips into the 40-50 zone marked good mean-reversion opportunities in the past and I have no idea how long this will continue to work. This setup is perhaps too well known right now. The chart below shows RSI turning blue (40-50 zone) for at least the seventh time since late January. These dips did not always mark the exact bottom, but SPY bottomed relatively soon after RSI dipped below 50 and moved to a new high.

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

ETFs in this group are also in uptrends, but their uptrends are not as steady and narrow as those in the group above. For example, the S&P 500 EW ETF (RSP) stalled from May to July and then broke out. The swings in the Software ETF (IGV) and Next Gen Connectivity ETF (FIVG) are wider with deeper dips. Nevertheless, they are all in uptrends with new highs earlier this month. RSI is also mildly oversold in the 40-50 zone. Even so, I “think” it may be more prudent to wait for a deeper pullback and a Momentum Composite oversold condition.

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

StochClose Uptrend, Momentum Composite Oversold


The DB Agriculture ETF (DBA) remains in an uptrend overall and this uptrend turned choppy since June. A choppy uptrend means the Momentum Composite is better suited to identify short-term oversold conditions. The red lines show when this indicator dipped to -3 or lower in March, June and September. DBA was oversold three of the last four days and this means a mean-reversion setup is in the making. I do not see a falling flag or tradable pattern, but there are signs of an upturn over the last five days on the candlestick chart (green shading).

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 electric vehicle (EV) ETFs are in choppy uptrends with the Self-Driving EV Tech ETF (IDRV) slightly stronger than the Autonomous EV ETF (DRIV). The Global Auto ETF (CARZ) is the least strong of the three because it has a lower high from June to August. The chart shows IDRV with a choppy uptrend since March and three oversold dips (May, July and August). IDRV bounced into early September and then stalled with a possible flag on the candlestick chart. A breakout at 50.40 would be short-term bullish.

ETFs in this next group broke out of falling wedge patterns in early August and these breakouts are holding. All three tested the breakout zone with throwbacks shortly after the breakout and bounce. These bounces, however, were short-lived as they are once again testing the breakout zones. I would rather see one test of the breakout zone because a second test shows an inability to get lift off (strong buying pressure after the breakout). Even so, the breakouts are holding, the breakouts are still bullish and they are mildly oversold with these pullbacks (RSI(14) dipped into the 40-50 zone).  

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

The Industrials SPDR (XLI) and Infrastructure ETF (IFRA) ETF had similar wedge breakouts, but they failed to hold their August lows after sharp declines on Tuesday. This means they are not as strong as ETFs that held their breakouts (XLF, XLB, CUT). The IFRA chart also highlights the difference between pattern trading and mean-reversion trading. The pattern trader takes the wedge breakout signal and stays with that signal until it is proven otherwise. The mean-reversion trader waits for an oversold condition and then buys immediately or after an upward catalyst, such as a StochRSI pop. The pattern for IFRA failed because the ETF broke the August low. However, there is now a mean-reversion setup working because the Momentum Composite is at -3. Watch for a StochRSI pop above .80 to signal a short-term reversal in the making.

The next three ETFs are consolidating within uptrends and RSI is oversold. Note that these consolidations extend back to May, which means these three have gone nowhere for four months. There were oversold conditions within these consolidations and StochRSI pops after the oversold conditions, but we have yet to see a consolidation breakout. The first chart shows the Steel ETF (SLX) with a trading range since May and the Momentum Composite becoming oversold in mid June and mid July. RSI was also oversold a few times and StochRSI popped above .80 at least three times since mid July. I would not call these signals a failure because SLX is still within the consolidation. Nevertheless, there is some concern because SLX fell the last five weeks and is underperforming.

The Pet Care ETF (PAWZ) had a short-term bullish setup in mid August and broke out of a small wedge. This breakout failed to hold as the ETF fell below the wedge lows (see candlestick chart). Overall, PAWZ remains in an uptrend and a bigger wedge is taking shape. This is also viewed as a bullish consolidation within the uptrend. Perhaps a deeper pullback is needed and a Momentum Composite dip to -3 or lower.

Note that I will cover the recent signals in the high-beta ETFs on Friday.

Small Micro Caps: IWC

StochClose Bearish: XLE, XES, XOP, FCG, COPX

Industrial-related: ITA, XAR, IYT, JETS


Clean Energy: PBW, ICLN

Cannabis: YOLO, MJ

eSports and Betting:  HERO, GAMR

Others: XBI, IBUY, KRE


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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