ETF Trends, Patterns and Setups – Tech ETFs Firm with Harami, Some Laggards are Showing Short-term Strength (Premium)

ETF Ranking and Trend Table Highlights

Of the 112 equity-related ETFs, 59 are in downtrends and 53 are in uptrends, according to their StochClose signals. Note that there are now 112 equity-related ETFs (instead of 113) because I stopped putting the Dry Bulk Shipping ETF (BDRY) in this category. Even though there are still plenty of uptrends out there (XLF, KRE, XLE, FCG, DBB, DBA…), there are more downtrends and this is a very challenging market environment.

The table below shows the new trend signals over the last five days. The Energy SPDR (XLE) triggered bullish a week ago, but there were 15 new downtrend signals over the last five trading days. Of note, two ARK ETFs whipsawed back to downtrends (ARKQ, ARKK), the Retail SPDR (XRT) and Mobile Payments ETF (IPAY) broke to multi-month lows, and three bond ETFs are in downtrends (IEF, HYG, AGG).

The next to the last column shows the 52wk Range, which reflects the location of the close relative to the 52-week high-low range (closing prices). Despite StochClose downtrend signals, several ETFs are still in the upper quarter of their 52-week ranges (IPAY, XRT, HYG, EFA, EZU). StochClose triggered bearish because these ETFs are at or below their July lows.

The chart below shows the 125-day range (blue) and the 52-week range (green) for XRT. XRT is near the low end of the blue zone (125-day range), but still near the high end of the green zone (52-week range). Maybe the blue range is a big corrective period after a 100% advance (50 to 100), but XRT has going nowhere since June and is lagging ETFs that hit new highs in September and/or October.

Broad Market Environment

As far as the broader market environment, I think we could be in for more choppy trading over the next few weeks. The bulls got a bloody nose when the Zweig breadth indicator plunged below .40 on September 17th. This ends a signal from 28-May-2020 and argues for some caution going forward. A surge above .615 is needed to put this indicator back on the bullish track (green lines).

In addition to weak breadth, several key groups have been correcting (declining) for several months and the correction seems to be broadening, not narrowing. These groups include industrials (XLI), materials (XLB), housing (ITB), retail (XRT), copper (COPX) and steel (SLX).

The Market Regime, as measured by the Composite Breadth Model, remains bullish. This means the current pullback in SPY is viewed as a correction within a bigger uptrend. The current pullback is the deepest since September-October 2020. This two month correction started with a sharp decline in September 2020, continued with a bounce into mid October and then tested of the September lows in late October. The correction ended with a breakout in early November.

Corrections are like a box of chocolates: you never know what you are going to get. The current pullback could be the first leg of a three leg zigzag lower. This would imply a bounce here in October and then another leg lower, perhaps to the rising 200-day SMA around 414 (not shown).

The chart above shows SPY becoming oversold in mid September as the Momentum Composite dipped to -5 twice (green arrows). SPY got an oversold bounce, but fell back below 430 last week. A harami formed on Thursday-Friday last week (blue oval) and prices firmed the last two days. A break above last Thursday’s high would be short-term bullish and could lead to a bounce. Even so, I am treading carefully because of the Zweig breadth indicator and weakness in key groups.

Finance and Energy Lead


ETFs related to the finance and energy sectors are leading the market. The first chart shows the Finance SPDR (XLF) with a cup-with-handle taking shape. This is a bullish continuation pattern and a break above rim resistance would signal a continuation of the bigger uptrend. XLF already has a flag breakout working from late September and I am marking support with the mid September low.

The next chart shows the Regional Bank ETF (KRE) with a triangle breakout and some follow through after the breakout. The triangle retraced around 1/3 of the prior advance, which was a 118% monster. The triangle represents a consolidation within an uptrend and the breakout signals a continuation higher. The red line marks the ATR Trailing Stop for reference.

The next chart shows the Energy SPDR (XLE) with a 20% decline from the June high and a falling wedge that retraced 1/3 to 1/2 of the prior advance (110%). Again, a monster advance followed by an extended correction. XLE broke out with a strong move in late September and remains well above the breakout zone. It may be extended short-term, but the breakout is bullish and the ATR Trailing Stop is shown for reference.

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

DB Metals and Agriculture Remain Strong

The DB Base Metals ETF (DBB) and DB Agriculture ETF (DBA) remain with bullish patterns and strong price charts. DBB broke out of a triangle in early September, hit a new high and then consolidated with a smaller triangle. Trading has been pretty choppy since May, but the overall trajectory remains up for prices. The smaller triangle is also a bullish continuation pattern and a breakout would open the door to new highs.

The next chart shows the DB Agriculture ETF (DBA) with a bullish cup-with-handle. The handle formed in September and the wedge breakout provided the early signal of an upturn in mid September. This is an example of trading the smaller bullish pattern within the larger bullish pattern.

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

The Lithium and Battery Tech ETF (LIT) remains within an uptrend and is consolidating at a relatively high level. Overall, the pattern looks like a bull flag and a break above the upper line would be bullish. Within the flag, the ETF fell and consolidated in the 80-85 area. A breakout at 85 would provide the early clue that LIT will break out of the bigger flag. The green arrows show when the Momentum Composite dips to -3 or lower (oversold).

The Strategic Metals ETF (REMX) pulled back more than LIT, but a bullish pattern is taking shape. REMX hit a new high in mid September and then fell back with a falling wedge that retraced around half of the prior advance. Both the pattern and the retracement are typical for corrections within bigger uptrends, even though it is a rather small correction. More like a pullback. A breakout at 105 would signal an end to the correction and a resumption of the uptrend. The green arrows show when the Momentum Composite dips to -3 or lower (oversold).

New high, Pullback and Harami


There are lots of ETFs that recorded new highs in September and then pulled back into October. These include tech ETFs, REIT ETFs, medical devices (IHI), water (PHO) and telecom (IYZ). Several of these ETFs also formed harami patterns on Monday-Tuesday and some closed above the high of these patterns, which confirms them. A harami is a Japanese candlestick pattern that can foreshadow a reversal. The body of Tuesday’s candlestick (open-close range) is inside the body of Monday’s candlestick. This is basically an inside day that shows indecision after Monday’s decline.

The chart above shows the Nasdaq 100 ETF (QQQ) with a long black candlestick on Monday (decline) and a smaller white candlestick on Tuesday (inside body). QQQ closed strong on Wednesday to confirm the harami and argue for an oversold bounce. Also notice that this pattern formed after QQQ retraced half of the prior advance and with RSI seriously oversold (<30). A 50% retracement is normal for a pullback within an uptrend and oversold RSI increases the chances for a bounce.

The next chart shows the Software ETF (IGV) with a harami near the August lows and a bounce on Wednesday. Notice that IGV also formed a harami in mid May (long white candlestick and smaller black candlestick). The color combination does not matter. The indicator window shows RSI with a “W” breakout as it exceeded its prior high (Friday’s high). A similar RSI breakout accompanied the mid May breakout.

The next charts show the Cloud Computing ETF (SKYY), Cybersecurity ETF (CIBR), Internet ETF (FDN) and FinTech ETF (FINX) with similar setups.

The Semiconductor ETF (SOXX) also formed a harami and closed strong on Wednesday, but the overall setup is a little different than the others. The big trend is up for SOXX and the ETF fell back to the August low. SOXX became oversold four times (green arrows) and then formed the harami on Tuesday. The blue boxes show a Meeting Lines pattern in mid July and a piercing pattern in mid August.  These are also bullish candlestick patterns that foreshadowed short-term reversals.

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

ETFs in this next group hit new highs in September and then fell back with falling flag patterns from early September to early October. They became oversold in the second half of September and started firming the last four days. Flag breakouts would be short-term bullish.

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.

I featured the Food & Beverage ETF (PBJ), Agribusiness ETF (MOO) and Healthcare Providers ETF (IHF) with long-term uptrends and bullish consolidations last week. IHF broke down and exceeded its July low, but the other two remain with these bullish patterns. MOO and PBJ hit new highs in May and June, respectively. They then moved into trading ranges and these ranges narrowed to form triangles. The pullbacks were relatively shallow (25-33 percent) and these triangles are viewed as bullish continuation patterns. As such,  breakouts would signal an end to the corrective period and a resumption of the bigger uptrend.

The Industrials SPDR (XLI) is currently one of the weakest sectors in the market right now. Note that XLE was the weakest sector in mid August and is now a leading sector. XLI is not as homogeneous as XLE so I would not expect a sudden move to new highs. However, some groups within the industrials sector are perking up. The Airline ETF (JETS) broke out in late September and the Transports ETF (IYT) is a leading group this week (up 1.72% the last three days). My eyes are on the Infrastructure ETF (IFRA) and the Aerospace & Defense ETF (ITA) because these ETFs held up well the last three weeks.

The chart below shows IFRA with a new high in May and then a slow grinding decline into mid September. From the May high to the September low, the ETF fell around 10% and retraced a quarter of the prior advance, which was 58%. The five month trend is clearly down, but could be an extended correction after the monster advance. The ETF hit a low on September 17th and edged higher the last 12 days (green line). Many ETFs continued lower into late October and the 12-day rise means IFRA shows some short-term leadership.

Now we get to the pattern within the pattern? Assuming the decline since May is a big correction, we can either wait for a breakout around 37 and/or StochClose to turn bullish. Or, we can look for an early clue, such as a break above the late September high. This would reverse the downswing within the bigger channel and increase the odds of a bigger breakout.

The next chart shows the Aerospace & Defense ETF (ITA) with a new high in June and a big consolidation into October. Short-term, the ETF surged in late September and consolidated to form a bull flag. This is a short-term bullish pattern within the bigger falling wedge. A flag breakout would also break the wedge line and be bullish.  

The copper-related ETFs are in downtrends since May, but holding up a little better than many other ETFs over the last 12 days. The Copper ETF (CPER) and Copper Miners ETF (COPX) were up obscene amounts from the March 2020 low to the May 2021 highs. The trends since mid May are clearly down, but these declines retraced around half of the advance from September to May and could be big corrections. Also note that short-term relative strength could provide an early “tell” to a trend reversal. The first chart shows CPER hitting a low in mid August during its decline and finding support just above this low in September. A break above 26.5 would provide the early clue of a bigger breakout.

The second chart shows COPX hitting support from the July-August lows and stabilizing the last 12 days. A short-term breakout at 35 would provide the early bullish clue and increase the chances of a bigger breakout at 38.

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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