Today’s report starts with bonds, the Dollar and gold. I am not, however, going to tie moves in one asset to movements in another. There are some relationships at work, but relations and correlations change and sometimes do not work out as expected. Instead, I will simply analyze each individually and ignore any possible intermarket relationships. Attention then turns to metals because platinum is showing relative and absolute strength over the past month. Palladium failed to break out, but still has a bullish setup working. We are also see strong pre-market moves in copper this morning so perhaps metals are coming alive. The chart below shows 12 spot commodities. Platinum (light green) is the only metal with a gain. Oil, nat gas and gasoline are up strong.
About the ETF Trends, Patterns and Setups Report
This report contains discretionary chart analysis based on my interpretation of the price charts. This is different from the fully systematic approach in the Trend Composite strategy series. In this ETF Trends, Patterns and Setups report, I am looking for leading uptrends and tradable setups within these uptrends. While I use indicators to help define the trend and identify oversold conditions within uptrends, the assessments are mostly based on price action and the price chart (higher highs, higher lows, patterns in play). Sometimes the chart assessment can be at odds with the indicators.
Weekly Scheduling
- Tuesday – 31 May: Market-ETF Report and Signal-Rank Table Update
- Wednesday – 1 June: Market-ETF Video and Market Regime Update
- Thursday – 2 June: Market-ETF Report and Signal-Rank Table Update
- Saturday – 4 June: ETF Signal and Rank Table
TLT Breaking Down and 10-yr Treasury Yield Breaking Up
The 20+ Yr Treasury Bond ETF (TLT) remains in a strong downtrend and has been pretty much oversold since January. The chart shows TLT breaking rising wedge support in late December and the Trend Composite turning bearish in early January. The ETF formed several short-term consolidations (bearish continuation patterns) along the way down. These did not last long as the ETF broke to new lows after each consolidation or bounce. The latest episode involves a rising wedge in May and breakdown the last two days. Bonds are clearly not on my watch list.
The 10-yr Treasury Yield is pretty much the mirror image of TLT. The chart below shows the 10-yr Yield surging from 1.7% in early March to 3% in early May. The yield fell into late May as a falling wedge formed and broke out with a two-day surge. This is bullish and argues for higher yields.
The next chart shows the 10-yr Treasury Yield since 2006 and a red resistance zone in the 3% area. This zone extends back to 2013 and a breakout here would forge a 10+ year high. With inflation at its highest level in more than 10 years and the big trend up for the 10-yr Treasury Yield, I expect a breakout at some point and a move towards 4%.
At this point, I wish I was smart enough to game out the ramifications of higher yields. I would make a guess, but there are simply too many variables in play to make a truly educated guess (war, fiscal policy, monetary policy, currency moves, economic cycles). This is for an intermarket specialist or perhaps even a, gasp, economist, with one hand, of course. Furthermore, I think we are better off focusing on the asset/ETF at hand and forgetting about possible intermarket relationships. Focus on gold if you are interested in gold. Do not trade gold based on movements in Treasury bonds or the Dollar.
Dollar Bullish ETF Breaks Out without StochRSI Pop
UUP
Speaking of UPP, we have a short-term breakout after a pullback. The Dollar Bullish ETF (UUP) has been in an uptrend since June and is a leading ETF over the last six to twelve months, especially considering what happened to stocks over the last six months. UUP is part of the All Weather ChartList and one of the fourteen stock alternatives used in the Trend Composite strategy, which is explained briefly after the chart. On the chart, UUP is in a clear uptrend and became quite extended after a big surge from mid April to mid May (yellow shading). UUP came back down to earth with a pullback into late May and almost touched the upper side of the trendline. The pullback alleviated overbought conditions and retraced around a third of the January-May advance.
Once a pullback is underway, I use retracements, broken resistance and prior lows to guesstimate the next support zone. The 27.3 area is as good as any for a pullback to end. I then look for a candlestick reversal, a StochRSI pop or some sort of short-term breakout, but not necessarily all three. I would not recommend candlesticks for UUP because currencies trade 24/7 and the frequent gaps are reacting to this round-the-clock trading. Price broke short-term resistance with a surge on Wednesday to trigger a short-term signal. Now is time to plan the trade and trade according to your plan. For possible scenarios, note the sharp pullback after the late March breakout (blue shading).
The All Weather Trend Composite Strategy is detailed in seven parts on the Premium page and was updated on May 19th. Basically, the strategy first filters for market regime and does not take buy signals in stock-based ETFs when the market regime is bearish, which it has been since April 11st. The strategy only considers buy signals in the 14 alternative ETFs during bear markets. The strategy filters for ETFs with a positive Trend Composite and buys the ones with the highest StochClose values. This makes it a trend-momentum strategy. Positions are exited when the Trend Composite turns negative.
You can learn more about my chart strategy in this article covering the different timeframes, chart settings, StochClose, RSI and StochRSI.
Gold Miners ETF Bounces within Large Range
GDX, GLD
Before looking at the Gold Miners ETF (GDX), I would like to review the Gold SPDR (GLD) and highlight a very short-term bullish pattern. First, GLD hit a new high above 190 in March and fell all the way back below 170 in mid May. GLD held just above its February low and reversed the downswing with a breakout last week. The ETF then fell back the last five days with a small flag and a breakout at 174 would be short-term bullish. The red line shows the ATR Trailing Stop at 169.88 for reference.
The Gold Miners ETF (GDX), Gold Miners Junior ETF (GDXJ) and Silver ETF (SLV) are highly correlated to gold and move in the same direction. The degree of movement, however, is much more pronounced because these three trade like gold with leverage. Gold sneezes and these three catch pneumonia so trade these three if you need a rush! I saw a double bottom in GDX and a breakout in late February/early March. GDX became overbought above 40 and fell back to the 35 area, which I thought would offer support. It did not as GDX continued lower with a move to 30. As with GLD, GDX reversed the downswing with a short-term breakout and this breakout is still holding. The ATR Trailing Stop is at 30.37, but I would re-evaluate on a close below 31.
Platinum ETF Surges to Resistance
PLTM
I do not know the reason, but the Platinum ETF (PLTM) is one of the top performing ETFs in the master list over the past month. Gold, Silver, Palladium and Copper are down over the last 23 trading days, but PLTM is up 8.6%. The Trend Composite is currently negative and long-term price action is basically flat on the chart. PLTM did, however, forge a higher high in March and held its September-December lows in April. The ETF reversed its downswing with a breakout in early May, fell back into mid May and turned up sharply the last three days. The red line shows the ATR Trailing Stop (3 x ATR(22) at 9.08 for reference. A close below 9 would call for a re-evaluation. Note this is a low-priced ETF with above average volatility and a close below 9 would involve a loss of around 10%
The Momentum Composite aggregates signals in five momentum-type indicators to identify short-term overbought and oversold conditions. This indicator is part of the TIP Indicator Edge Plugin for StockCharts ACP
Palladium ETF Establishes Short-term Resistance
PALL
The Palladium ETF (PALL) looked poised to break out with a surge on Friday, but fell back the last two days and established resistance at 193. Buying pressure (demand) was not strong enough to push prices through this level on two separate occasions. A break above 193 would, therefore, show an increase in buying pressure and trigger a breakout. The red line shows a possible ATR Trailing Stop at 176.26 for reference.
Agribusiness ETF: Upside Breakout vs Potentially Bearish Pattern
MOO
The Agribusiness ETF (MOO) provides a good example of the active signal and the potential setup that proves this signal wrong. MOO is in some sort of uptrend because the price chart sports higher lows for a year and the ETF recorded a 52-week high in April. MOO fell back hard into mid May, but held just above the February low and reversed the downswing with a short-term breakout in mid May. This is the active signal. It is now time to ask ourselves what would prove this signal wrong. The blue dotted lines show a possible rising wedge after the steep decline. This could be a bearish continuation pattern, but it has yet to be triggered. A close below 94 would confirm the rising wedge and prove the mid May breakout wrong.
Note that the Aerospace & Defense ETFs (PPA, ITA) were featured with similar setups on Tuesday and I used the ATR Trailing Stop for these two.
Software ETF: Downtrend Versus Corrective Pattern
IGV
There are quite a few ETFs with double-digit advances in the second half of May (from the mid May low to the late May high). These include the Clean Energy ETF (PBW), ARK Innovation ETF (ARKK), Mobile Payments ETF (IPAY), Biotech ETF (IBB), Home Construction ETF (ITB) and Software ETF (IGV). These are impressive moves when taken out of context, but counter-trend bounces within the context of the bigger trend. This is why knowing our strategy is important. Our strategy tells us where to focus and, just as importantly, where NOT to focus. These ETFs forged 52-week lows in May and are in long-term downtrends. As such, they are not on my focus list.
The chart below shows an example of IGV when it was on the focus list and when it wasn’t. IGV hit a 52-week high in February and was in an uptrend in 2021. The ETF formed a big triangle and this was deemed a bullish continuation pattern. Most importantly, the pattern fit my strategy: bull market, uptrend, bullish continuation pattern, oversold conditions.
The trend turned down in early December when IGV broke the October low and the Trend Composite turned negative. IGV went out of focus with this reversal. We can see a triangle into January and rising wedge into mid February. These are counter-trend bounces and bearish continuation patterns. IGV fell to new lows in May and became extremely oversold. This gave way to a big percentage bounce, but it is still within the context of a bigger downtrend (falling channel and negative Trend Composite). IGV and the others are still not on a my focus list.
Previous Commentary and Video
Wednesday Market and ETF Video (here)
Market Regime Update with Breadth Model and Yield Spreads (here)
Topics Covered in Tuesday’s Report (here)
- Big Oversold Bounces (ARKK, PBW, XLY, SKYY, SOXX, ITB)
- Oversold Bounces for SPY and QQQ
- Four New Trend Signals (GLD, MXX, PALL, PSCM)
- Strength within the Materials Sector (XLB, RTM)
- Energy-Related ETFs Are the Real Leaders ($WTIC, PSCE, XES, FCG)
- Agriculture-Related ETFs Remain Strong (DBA, WEAT, CANE, JO)
- Metals & Mining SPDR Surges After Normal Retracement (XME)
- Base Metals and Gold ETFs Hold Uptrends Reverse Downswings (DBB, GLD)
- Agribiz and Healthcare ETFs Hold Lows and Reverse Downswings (MOO, XLV)
- Aerospace & Defense ETFs Surge off Support (ITA, PPA)
- Copper ETF Reverses Downswing within Trading Range (CPER)