ETF Trends, Patterns and Setups – Tech ETFs Lead, Signs of Strength and Froth, lntermarket Dynamics

The technology-related ETFs are coming back to life with the Technology SPDR (XLK) and Nasdaq 100 ETF (QQQ) moving to new highs this week. These two are just playing a little catchup because several other tech-related ETFs already hit new highs in late November (SOXX, IGV, SKYY, HACK, FDN, IPAY, FINX). Energy and banks are attracting a lot of attention still, but these tech-related ETFs are the ones trading at new highs.

There are some interesting dynamics at work in the intermarket arena. The Silver ETF (SLV) broke out and is outperforming the Gold SPDR (GLD). In addition, the Inflation-Protected Bond ETF (TIP) broke out and is outperforming the 20+ Yr Treasury Bond ETF (TLT). TLT and GLD remain in downtrends, but both are firming and the weekly chart for GLD still looks constructive.

Stocks are in the midst of a spectacular run. I am not talking about the advance from late March to mid December. Instead, I am talking about the surge from November 1st to mid December. Over half of the equity-related ETFs in the Core List are up more than 20% the last 33 trading days. 21 are up more than 30 percent. These are huge moves that affirm bullish momentum. However, such moves also pave the way for a corrective period. Stay alert, plan your trade and trade your plan.

Recent Trend and Mean Reversion Signals

Note that a beta version of the ETF ranking table is now available. This table can be sorted, searched, exported and printed. There are even chart links! Click here to check it out.

There were no new trend signals over the past week. Several energy-related ETFs triggered bullish trend signals two to three weeks ago (XLE, XOP, AMLP, FCG) and the Uranium ETF (URA) triggered bullish on November 30th. The Silver Miners ETF (SIL) and Gold SPDR (GLD) triggered bearish three weeks ago (14 bars ago). Although, SIL is above its rising 200-day SMA.

Note that StochClose signals are part of a trend-following strategy that is detailed in a six part series that can be found mid way down the Premium Page. The Core Chartlist with 117 ETFs is used for this table and this can also be found on the Premium Page.

The chart below shows the Uranium ETF (URA) and a whipsaw example using StochClose signals. StochClose signaled a downtrend on October 14th and an uptrend on November 30th. Hindsight is 20/20, but it is also a good idea to analyze the chart for confirmation. In particular, look at the structure of the current trend in play. URA hit a new high in August with an 80% advance. The ETF then corrected with a falling wedge that retraced 1/3 to 1/2 of this advance. This is a normal correction after such a big advance. StochClose dipped below 40 because price was near the low end of the 125-day range (April 17th to October 14th). URA broke out of the wedge in early November, formed a small bull flag in late November and broke out again.

The bond ETFs were the biggest StochClose movers over the last five days. MUB led the way with a 11.5 point jump and is trading near a 52-week high. The 52wk Range is at 97 and 100 equals a 52-week high. The three other bond ETFs also jumped (AGG, IEF, TLT), but they remain in downtrends overall.

The chart below shows the 20+ Yr Treasury Bond ETF (TLT) with a big trading range since the March madness. There is a downswing, upswing and downswing (current). There is no real trend here, just a big trading range. More recently, TLT managed to firm and form a small triangle. At this point, I would have to treat this as a consolidation within a downtrend (bearish continuation pattern). The mid November high marks key resistance and a breakout here is needed to reverse the four month downswing.

There are only two ETFs with uptrends and oversold signals: the China Large-Cap ETF (FXI) and the Utilities SPDR (XLU). This means the StochClose signal is bullish and RSI(14) is trading in the 30-50 zone.

The chart below shows FXI hitting a new high in mid November, falling back to the breakout zone and RSI dipping to the low 40s. This is the area to watch for a bounce or momentum pop (StochRSI cross above .80).

ETF Grouping and Ranking by Trends, Patterns and Setups

Strong Uptrend, Serious Acceleration, Overextended


ETFs in this first group are the price leaders with the strongest uptrends and some big moves since early November. The DB Base Metals ETF (DBB) is up a measly 12 percent since November, while the others are up between 20 and 42 percent. XME is up 36% and REMX is up 42%. These are strong uptrends for sure, but getting quite extended.

The first chart shows the Semiconductor ETF (SOXX) with a steady uptrend since May and an acceleration higher since November. The yellow zone shows when RSI was above 70 and at its highest level since April 2019. Overbought and overextended are not bearish signals. Instead, such conditions tell us that the odds of a pullback or consolidation are above average in the coming weeks.

The Mobile Payments ETF (IPAY) surged some 90 percent and then fell back to its 200-day and 33% retracement in late October. The ETF then surged 26% the last six weeks. A clear and strong uptrend, but getting frothy with RSI at 74, its highest level since early June.

The Biotech SPDR (XBI) broke out way back in mid September and then plodded along into late October. The advance accelerated in November as the ETF tacked on another 30% the last six weeks. The red line is the original ATR Trailing Stop with a multiplier of 3 and the blue line is a tighter stop with a multiplier of 2.

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

There are three possibilities with extended charts like these. First, we can ride the uptrend and absorb any pullback or correction. Second, we can place a trailing stop to lock in some profits. Third, we can exit on a profit target. There will be another setup or tradable pullback, but not until sometime in 2021. Chartists can also consider closing part of a position (scaling out).

Uptrend, Short-term Consolidation, Breakout


The next three ETFs have uptrends of varying degrees at work, short-term consolidations and short-term breakouts. The Clean Energy ETF (PBW) sports the strongest uptrend of the three. It formed a pennant after becoming very overbought and broke out the last two days.

The Alternative Harvest ETF (MJ) broke out in early November, fell back to the 200-day and surged into early December. A small falling wedge (pennant) formed and the ETF broke out on Thursday. Keep in mind that this is a low-priced ETF with relatively high volatility (translation: above average risk).

The next chart shows the DB Agriculture ETF (DBA) with a breakout in mid November, a pullback in early December and a wedge breakout. The ATR Trailing Stop, which is based on closing prices, continues to hold. A close below 15.21 would trigger this stop.

Steady Uptrend, New High


The Consumer Discretionary SPDR (XLY) continues to work its way higher and quietly recorded a new high on Wednesday. Strength in retailers and auto manufacturers is powering this sector. AMZN (21.75%) is the largest holding and remains well below its early September high. Nevertheless, AMZN formed a triangle above the rising 200-day and this is a bullish continuation pattern. The stock bounced this week and could be poised to challenge the September high. I would not want to bet against Amazon during the holidays!

Here is an update on Bollinger Band squeezes in four big $QQQ stocks. $APPL extended after its breakout and is leading. $AMZN and $MSFT closed above their upper bands for breakouts on Wednesday. $NVDA is lagging and stalling near support of an Ascending Triangle, but the group ($SOXX) is strong.

Jun-Oct Rising Channel, November Acceleration, New High


The Russell 2000 ETF (IWM) continues to record new highs since its acceleration higher in November. The ETF plodded along with a dull rising channel from June to October and gained 24% in five months. IWM caught fire in November and is up some 27% the last  6-7 weeks. The ATR Trailing Stop continues to hold and this one remains in the trend monitoring stage. Note that IWM is 32% above its 200-day and this is the most ever (since 2000).

Jun-Oct Consolidation, Early Nov Breakout, New High


The S&P 500 EW ETF (RSP) and S&P SmallCap 600 SPDR (IJR) formed big Ascending Triangle patterns from June to October and then broke out with market leading advances from early November to early December. RSP surged some 20%, hit a new high on December 4th and then consolidated the last eight days. This eight day consolidation could be a small flag and a breakout would keep the move alive. This flag is very tight and tight flags are prone to whipsaws (failed breakouts).

Sep-Oct Consolidation, early Nov Breakout, New High


ETFs in this group and the next two sport consolidations in September-October and breakouts in November. SPY and XLC (this group) broke out in early November, QQQ and XLK (next group) broke out in mid November and the last four broke out in late November. They all hit new highs in early September and again here in December. These ETFs are true leaders, as opposed to the Energy SPDR (XLE) and Finance SPDR (XLF), which have yet to record new highs. Multiple new highs in 2020 > No new high in 2020.

The chart below shows the S&P 500 SPDR (SPY) breaking out in early November and working its way higher since the breakout with a tight rising channel. While a channel break would seem short-term negative, it would just lead to the next tradable pullback. Pullbacks are deemed tradable as long as the bigger trend is up and we are in a bull market environment.

Sep-Oct Consolidation, mid Nov Breakout, New High


QQQ broke out a little later than SPY, but the overall trend and pattern are the same. The tentative breakout in QQQ and late new high (early December) are just noise designed to take our eye off of the pattern at work. The triangle was a consolidation within an uptrend and a bullish resolution was expected. We should favor trend continuations over trend reversals. One day we will get a reversal, but not today. QQQ continues to hold the ATR Trailing Stop and recorded another new high on Wednesday.

Sep-Nov Consolidation, Late Nov Breakout, New High


The next four tech-related ETFs broke out in late November. The Cloud Computing ETF (SKYY) and Cyber Security ETF (HACK) led the way by extending higher the last three weeks. The breakouts in the Software ETF (IGV) and Internet ETF (FDN) were a little more tentative, but both recorded new highs the last two weeks. IGV and FDN also broke out of classic Ascending Triangle patterns.

Aug-Nov Consolidation, Early Dec Breakout, New High


The Biotech ETF (IBB) broke out in early December, which is after the ETFs listed above. This is why it is further down the list. IBB consolidated from August to November and put everyone to sleep. There was a surge in early November, a pennant into late November and a pennant breakout a few days before the bigger triangle breakout.

Uptrend, New High, Short-term Consolidation


ETFs in this next group are in uptrends overall and recorded new highs in November. They then corrected into December with short-term pullbacks or consolidations (flag, pennant, small falling wedge). The Healthcare SPDR (XLV), Medical Devices ETF (IHI) and Healthcare Providers ETF (IHF) broke out and then fell back or stalled. This is not very encouraging, but the long-term trends are up and the cup is still half full. The Industrials SPDR (XLI) and Consumer Staples SPDR (XLP) are stuck in extended short-term consolidations.

Short-term flags and pennants can be frustrating from a trading standpoint because a fair number of them fail after their breakouts. Sorry, I do not have any hard stats on the failure rate. Sometimes we get a breakout and then a decline back below the flag or pennant low. This is especially likely with tight (narrow) patterns. The frustrating part comes because the bigger trends are still up and often resume at some point after the failure.  Plan your trade and trade your plan!

New High, Sep-Dec Consolidation, Breakout


The Silver ETF (SLV) got an upgrade this week as it broke out of a triangle consolidation. SLV held well above the rising 200-day during this consolidation and held up much better than the Gold SPDR (GLD). The triangle retraced 1/2 to 2/3 of the prior advance and this suggests that a two steps forward/one step backward sequence is at work. The breakout signals a continuation of the bigger uptrend and is considered bullish until proven otherwise. Last week I put an ATR Trailing Stop (22,2,close) on the chart for reference.

The Gold SPDR (GLD) belongs further down the list here because it peaked in early August and fell the last four months. GLD did, however, bounce the last three weeks and the long-term chart still looks constructive. The weekly chart below shows the ETF surging some 40% from November to September and then correcting with a falling channel that retraced around 50% of the move. Note that I elected to ignore the March madness period. A 50% retracement, falling channel and return to the rising 40-week SMA are normal for corrections. Also notice that weekly RSI(14) is in the 40-50 zone, which acts as momentum support and held in April 2019 and March 2020. Thus, gold is getting interesting as silver breaks out.

Sep-Nov Falling Wedge, Nov Breakout


I am really not interested in bond ETFs when there is a bull market in stocks. Of note, the Inflation-Protected Bond ETF (TIP) is outperforming the 20+ Yr Treasury Bond ETF (TLT) lately. The former has a channel breakout and recently exceeded its October highs. The Aggregate Bond ETF (AGG) is being weighed down by Treasury bonds, but has a breakout working because of strength in the Corporate Bond ETF (LQD). LQD is the strongest of the group with an early November breakout, an early December bull flag and a flag breakout working.

The DB Energy ETF (DBE) was put in this group because there is a correction from early September to mid November and a breakout in mid November. DBE formed a pennant after the first breakout and continued higher. It then formed a small three day flag and again broke out to continue higher. As extended as XLE and XES are, they could continue higher as long as oil-related commodities rise.

New High mid Oct, Tightening Consolidation


The Home Construction ETF (ITB) continues to put me the sleep with its narrowing consolidation and flat trading since late August. The bears will see a head and shoulder reversal pattern at work, but I am not going to take the bait because the long-term trend is up and we are in a bull market. A breakout from the triangle would signal an end to the consolidation and a resumption of the bigger uptrend. Short-term, chartists can also watch for StochRSI do pop above .80.

Multi-Month Consolidation, Breakout, Pullback


It is hard to get excited about defensive groups during a bull market because we want to be adding beta in bull markets (not subtracting it). The Utilities SPDR (XLU) and Residential REIT ETF (REZ) are not exactly offensive plays, but they do have bullish setups working. Both broke out of long consolidation patterns and then pulled back to the breakout zones with small falling wedges. These pullbacks represent a throwback and the breakout zone is the first place to expect support. Keep in mind that these two are still lagging ETFs that recorded new highs over the last few months.

The remaining ETFs are not on my radar because they are either overbougth and have yet to hit new highs or are in downtrends the last few months (except GLD and DBP). The charts for these ETFs are available in the ChartBook (link above).

Jun-Sep Falling Wedge, Oct-Nov Breakout, Overextended:  KRE

Jun-Oct Consolidation,  Nov Breakout, No New High: XLF, ITA, HYG

Jun-Oct Falling Wedge, Nov Breakout, Overbought: XLE, XES, XOP, AMLP, FCG

Stuck in Consolidation since June: XLRE

Downtrend Since August: TLT, GLD, GDX, DBP

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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