Two Continuation Patterns Take Shape in XLI


The Industrials SPDR (XLI) has struggled in 2018 and is pretty much unchanged year-to-date. Despite flat performance this year, a pair of bullish continuation patterns are taking shape. Let's look at the key levels to watch going forward.

Long-term, the trend is still up because the PPO(50,200,0) is positive, which means the 50-day EMA is above the 200-day EMA. The ETF also recorded a 52-week high in January.

The first continuation pattern is a large falling wedge. This pattern represents a correction after the big advance from October to January (~22%). The falling wedge retraced around 2/3 of this advance as the ETF reversed course in the 70-71 area.  XLI then broke above the wedge line and exceeded the April high. This bullish breakout reverses the wedge decline and signals a continuation of the prior advance.

The second continuation pattern is a flat flag. XLI surged 7% in May and then consolidated with a sideways trading range. Flags are typically continuation patterns and a break above flag resistance would signal a continuation of the May surge. This would target a challenge to the January high.

My bias is bullish for XLI and now I need to set the level for a re-evaluation. The flag low and the wedge breakout zone mark the first support level to watch for a failure. A close below the flag lows would negate the flag and invalidate the wedge breakout.

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Topics for Tuesday, June 12th:

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  • XES Hits Moment-of-truth as XLE Holds Gap (plus AMLP, CVX, SLB).
  • XLF and Big Banks Remain Weaklings (C, BAC, GS, MS, USB).
  • Treasury Bonds Firm as Fed Meeting Looms.
  • Stocks to Watch: HON, UTX, CSCO, GPN, MSI, PFPT, SNPS, RSG, AET, MDT.
  • Click Here to Watch

- Arthur Hill, CMT

Senior Technical Analyst,

Book: Define the Trend and Trade the Trend
Twitter: Follow @ArthurHill

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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