ETF Trends, Patterns and Setups – Uptrends and Extended, Oversold vs OVERSOLD, ETFs with Lower Highs Underperforming (Premium)

Ranking and Trend Table

Of the 113 ETFs in the Core List, 79 are in uptrends (70%) and 34 are in downtrends (30%). This is more than enough to support a bull market in stocks. Six of the seven major index ETFs are in uptrends (SPY, RSP, MDY, IJR, IWM , QQQ) and one is still in a downtrend (the Russell Microcap ETF (IWC)). As far as ranking is concerned, large-caps have StochClose values in the high 90s and are still leading small-caps by a wide margin. IWM and IJR have StochClose values near 67.

Ten of the eleven sector SPDRs are in uptrends. XLI, XLF and XLB slipped over the past week and are not as strong as XLK, XLY, XLC, XLV, XLP, XLRE and XLU, which have StochClose values in the 90s. XLE remains by far the weakest of the eleven sectors with a StochClose value of 23.7.

There were six new uptrend signals over the last five trading days, and two new downtrends. As noted in the weekend video, the Russell 2000 ETF (IWM) and Japan ETF (EWJ) triggered  bullish. EWJ broke out of a long consolidation and hit a new high this week, but IWM remains stuck in a consolidation and below its March and June highs.

The chart below shows the new uptrend signals in IWM, EWA, EWJ and ESPO. EWJ is the only one at a new high and the only one with a true breakout. IWM and ESPO are still stuck in trading ranges that extend back to March. EWA is breaking out of a triangle.

The Aerospace & Defense ETF (ITA) and Transports ETF (IYT) triggered downtrend signals. Note that the Aerospace & Defense ETF (XAR) and Airline ETF (JETS) are already in downtrends and these four are part of the Industrials SPDR (XLI), which was hit quite hard on Tuesday and has gone nowhere since May. The chart below shows XLI with a wedge breakout and a long trading range (blue shading). XAR, JETS and IYT have been trending lower while SPY has been moving 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.

Uptrends and Oversold Conditions

There are dozens of ETFs with uptrends and oversold RSI (14), which means the StochClose signal is bullish and RSI is in the 30-50 zone. There are varying degrees of oversold. RSI in the 40-50 zone represents a mild oversold condition, the 30-40 zone represents a modest oversold condition and below 30 represents a serious oversold condition. There are lots of mild oversold readings (RSI 40-50) right now because stocks fell the last three days. While technically oversold, these mild oversold readings are not always the ideal setups and we must turn to the charts for further insights.  

The Momentum Composite is more discerning than RSI when it comes to oversold conditions. While there are dozens of ETFs with mild oversold conditions right now, there is only one ETF with an oversold reading in the Momentum Composite (-3 or lower). The small chart in the upper left shows StochClose turning bullish on April 19th for the Muni Bond ETF (MUB) and the bar chart shows the Momentum Composite dipping to -3 or lower in August and September (red lines). The blue lines show when RSI dipped into the oversold zone (30-50) and RSI turned blue as well.

RSI did double dip into oversold territory in May and June-July as well as a dip in early August. The Momentum Composite managed a -1 reading in May and June, but did not hit oversold until mid August. Oversold conditions alert traders to focus on the chart for a bullish continuation pattern, a short-term bullish setup or a StochRSI pop. Falling wedges formed in May and June, and breakouts led to new highs. MUB became quite oversold on August 12th, but did not get a bounce and moved sharply lower to become even more oversold in early September (RSI < 30 and Momentum Composite below -3). Not all setups work. After becoming oversold on Tuesday, Wednesday’s big move triggered a bullish StochRSI pop (lower left window) so there is another signal working.

I added the Sports Betting iGaming ETF (BETZ) to the core list and it is now visible on the ETF Table. Note that BETZ and some gaming stocks were covered on August 6th as Draft Kings (DKNG) was breaking out. I am featuring BETZ today because StochClose turned bullish on August 27th and it is leading the market since August. BETZ also presents investors with a conundrum, as do the recent bullish signals in the ARK ETFs. BETZ surged over 10% in six days when StochClose triggered bullish. The ETF was clearly short-term overbought, but ETFs are often overbought when trend-following indicators trigger bullish. Keep in mind that it takes strong buying pressure to become overbought and strong buying pressure is typically long-term bullish. 

True trend-followers with a clear strategy and a diversified portfolio simply swallow the overbought pill and take the trend signal. A hybrid trend-follower, for lack of a better term, might find this a hard pill to swallow with seasonal headwinds hitting an extended market here in September. The alternative to taking the trend signals is to wait for the pullback, which may or may not materialize. This could mean RSI(14) in the oversold zone, Momentum Composite at -3 or lower or a bullish continuation pattern (falling wedge/flag). The key is to know your strategy and wait for your pitch. The BETZ chart also shows a successful oversold bounce in mid May (green comment) and an oversold signal that did not lead to a bounce in early July (blue comment).

Below is a video discussing BETZ, the StochClose signal and the Momentum Composite.

Steady Uptrend


Several ETFs are in steady uptrends and leading the market with new highs in early September. The S&P 500 SPDR (SPY) and Nasdaq 100 ETF (QQQ) feature in this group, along with the Communication Services SPDR (XLC), Healthcare SPDR (XLV) and Real Estate SPDR (XLRE). All told, it is quite a diverse group because we also have the Water Resources ETF (PHO), Telecom ETF (IYZ) and Global Carbon ETF (KRBN) in the mix. The first chart shows SPY rising within a rising channel and in the middle of this channel. Short-term, this is a bit of no-man’s land. The uptrend favors a move to the upper line, but the ETF is extended short-term with a 2.6% gain since the August 18th low and a 4.5% gain since the July 19th low.

QQQ is also in a strong uptrend and extended. Extended is not a reason to turn bearish, but it does increase the odds for a pullback or rest. At the very least, it means there is no mean-reversion setup present and nothing to do except manage an active position (trend-monitoring phase).

The next chart shows KBRN with a mild oversold condition on August 19th (RSI 40-50) and a strong oversold bounce the last 14 days. The blue vertical lines show prior instances when RSI dipped into the 40-50 zone. Note that RSI has not been below 40 since October 2020. This is testament to the strength of the uptrend because the pullbacks are so mild. Also notice that the Momentum Composite did not dip below -1 during this timeframe. The bar chart shows some patterns along the way.

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.

Choppy Uptrend SOXX, SMH, FIVG, IHI

ETFs in this next group are also in uptrends and leading, but their uptrends are a little more volatile. They are near 52-week highs and strong, but there is nothing to do right now because they are in the trend-monitoring phase. The chart below shows SMH with a choppy uptrend since March. Notice that RSI(14) dipped below 40 in early March and mid May, and the Momentum Composite dipped to -3. Subsequent RSI dips held the 40 level in July and August as the dips became shallower.

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

Leader, but Extended


The tech-related ETFs are also leading the market since mid May and looking extended. These six are up between 15 and 23 percent the last 80 days, and up between 5 and 8 percent the last 14 days. The first chart shows the IGV triangle breakout in mid June and big surge into mid July. Upside momentum slowed since mid July as a rising channel took shape and IGV is near the top of this channel. No play here.

The FinTech ETF (FINX) is up some 15% since mid July. The ETF fell just short of a 52-week high this week and then fell back the last two days. FINX remains short-term overbought and ripe for a rest. The red line shows the ATR Trailing Stop for reference.

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

The Cloud Computing ETF (SKYY) broke out of a triangle two weeks ago and tagged a new high on Monday. The trend is up and strong, but the ETF is short-term extended. Time to wait for a new setup, which could take days or weeks.

ETFs in this next group are in uptrends overall. They corrected into July and broke out in mid August. The breakouts are largely holding, but these ETFs did not exceed their August highs here in September. Note that SPY and the S&P 500 EW ETF (RSP) forged higher highs from August to early September. ETFs with lower highs are underperforming short-term and should be monitored closely.

The first chart shows the Industrials SPDR (XLI) with a wedge breakout and not much follow through after the breakout. The breakout is still holding, but the moment of truth is nigh as XLI tests the August lows. Notice that last week’s high (early Sept) did not exceed the August high. Buyers were not able to push prices above the prior high and this shows less upside strength. A break below the August lows (call it 101.5) would negate the wedge breakout. The second chart shows the Infrastructure ETF (IFRA) with similar characteristics.

The next charts show the Materials SPDR (XLB) and Home Construction ETF (ITB) with steeper falling wedges and breakouts that are holding. The ETFs broke out, tested the breakout zone with throwbacks in mid August and bounced in the second half of August. These bounces fell short of the August highs and both fell rather sharply the last three days. A break below the August lows would negate the wedge breakouts and call for a reassessment.  

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

StochClose Bullish, but Lower High Working


ETFs in this group are in uptrends overall, but trading remains quite choppy and they did not exceed their August highs this month. All four became oversold from August 17 to 19 as the Momentum Composite dipped to -3 or lower and they all bounced the last few weeks. The Autonomous EV ETF (DRIV) and Self-Driving EV Tech ETF (IDRV) were hit pretty hard on Wednesday (down around 1.5%) as money moved out of high-beta stocks.

The chart below shows the Self-Driving EV Tech ETF (IDRV) with a choppy uptrend since March and higher highs into August. The choppy nature of this uptrend tells me to avoid breakout type signals and mild oversold conditions. Pullbacks with short-term breakouts and oversold signals from the Momentum Composite are preferred (blue lines). Even so, this uptrend is still quite volatile and difficult to trade. The same goes for the other three (CARZ, DRIV, IGN)

The DB Base Metals ETF (DBB), DB Agriculture ETF (DBA) and Agribusiness ETF (MOO) are in uptrends with consolidation patterns and consolidation breakout working. DBB and MOO hit new highs in May and formed triangles into late August. They both bounced the last few weeks and are making a bid to break out of their triangles. A triangle within an uptrend is deemed a bullish continuation pattern and a breakout would signal an extension of the bigger uptrend.

The next chart shows the DB Agriculture ETF (DBA)  breaking out of a falling channel in late July and then stalling after the breakout. The ETF fell quite hard the last six days as RSI dipped into the mild oversold zone (40-50). The Momentum Composite is at -1 and not oversold yet. I would prefer to wait for a better oversold setup before considering.  

The Steel ETF (SLX) and Metals & Mining SPDR (XME) formed triangle consolidations, but are well short of breakouts. The Steel ETF (SLX) is especially weak because it bounced from August 20th to 27th and then fell the last seven days. The bounce was short-lived and SLX is showing medium-term and short-term relative weakness. While a triangle is technically a bullish continuation pattern, a support break would be bearish and argue for a deeper pullback, perhaps to the rising 200-day. 40% of XME stocks come from the steel industry and XME will follow SLX.

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 in uptrends overall, but stuck in trading ranges the last four to six months. There are swings within these ranges and the best way to play these swings is to wait for a decent oversold condition (Momentum Composite at -3 or lower).  Even though, the bounces are sometimes too sharp and quick to capitalize. The chart below shows the Mobile Payments ETF (IPAY) with a massive trading range since the February high. I could make the case for a big triangle since May and a possible triangle breakout, but the range is clear on the bar chart and trading is flat. This ETF was hit quite hard the last four days.

Small Micro Caps: IWC

Energy-related: XLE, XES, XOP, AMLP, FCG

Industrial-related: ITA, XAR, IYT, JETS


Clean Energy: PBW, ICLN, TAN

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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