Weekend Video – Spinning Tops, Wedge Breakouts, ATR Trailing Stops, Bullish Breadth Thrust, New Highs in Cyclical ETFs and Oil Breakout

Today’s video starts with a review and outlook for the broader market. SPY formed a weekly spinning top to show indecision, but the falling wedge breakouts and follow through still dominate the charts. Small-caps are making a bid to outperform as a key ratio broke above its 200-day for the first time in two years. The rally continues to broaden with two more bullish breadth thrusts. Many ETFs are in the trend monitoring phase and I will cover the ATR Trailing Stop in detail. Elsewhere, four cyclical ETFs hit new highs, oil broke out, GLD and TLT are battling their wedges and the Dollar is firming.

ETF ChartNotes
Saturday, 17 October 2020

Many of the charts with flag/wedge breakouts in late September show the ATR Trailing Stop. This stop is based on the highest close since the breakout and the 22-day ATR value on the day of the highest close. It “rachets” up as long as the closing highs rise. It flatlines when prices fail to make a new closing high. A close below this trailing stop can be used for exits if trading the flag/wedge breakouts. The chart below shows SPY with an example. The highest close since the breakout is 352.43 on 12-Oct and ATR(22) was 5.73 on 12-Oct. The trailing stop is 340.97 (352.43 – (5.73 x 2)).

Note that longer term players can ignore these stops and focus on the bigger trends: 200-day SMAs, support from the September lows and bullish StochClose. It is also possible to accumulate based on falling wedge breakouts, triangle breakouts and RSI dips into the oversold zone (~40), and then sell when the bigger trend reverses.

IWM has a rising channel working since June with higher highs and higher lows. IWM and MDY exceeded their early September highs and led the broad market ETFs the last four weeks. SPY and QQQ are not exactly weak, but they have yet to exceed their early September highs. The chart below shows the IWM:SPY ratio breaking its 200-day SMA for the first since September 2018.

The late September breakouts remain the patterns in play at the moment for dozens of ETFs. Most followed through after these breakouts and they are in the trend monitoring phase. These include QQQ, XLK, XLY, XLV, XLP, IGV, SOXX, FDN, SKYY, HACK, IPAY, FINX, BOTZ, XRT

The Home Construction ETF (ITB), EW Consumer Discretionary ETF (RCD), Retail SPDR (XRT) and Semiconductor ETF (SOXX) recorded new highs this week. These are cyclical groups and new highs bode well.

The Regional Bank ETF (KRE) and Bank SPDR (KBE) formed small bull flags the last five days. The Solar Energy ETF (TAN) formed a high and tight pennant/wedge. These are very short-term patterns. Breakouts in KRE and KBE could lead to bigger triangle breakouts. A breakout in TAN would be bullish, but this is one of the more volatile ETFs.

The Medical Devices ETF (IHI) and Biotech SPDR (XBI) recorded new highs this week. The Biotech ETF (IBB) fell short and is not as strong as XBI.

The Utilities SPDR (XLU) broke out of a long triangle consolidation and this breakout is holding as XLU consolidated last week. A small bull flag could be forming and XLU appears to be breaking out with a bounce on Friday.

The Gold SPDR (GLD) broke out of a falling wedge pattern on 9-Oct (Friday), but fell back this week as the Dollar firmed. The breakout is still largely holding, but a close watch is warranted.

The 20+ Yr Treasury Bond ETF (TLT) remains within its falling wedge after a pullback the last two days. This established a resistance level to watch and a breakout at 164 would be bullish.

The long-term trend for oil, XLE and XES is clearly down, but the US Oil Fund (USO) has a short-term breakout working and StochClose turned bullish for the first time since January. I realized that USO and UNG cannot be used for long-term analysis, but short-term I am seeing a falling wedge correction and a breakout that is holding.

Thanks for tuning in and have a great weekend!

-Arthur Hill, CMT
Choose a Strategy, Develop a Plan and Follow a Process

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