Chart Advisor: MTUM Breaks Out of Long-Term Base

By Manuel Tellechea, CMT

1/ MTUM Breaks Out of Long-Term Base

2/ Risk-On Environment

3/ Large-Cap Growth Coiled for Breakout

4/ Small-Cap Value Joins the Risk-On Rotation with Breakout Attempt

Investopedia is partnering with CMT Association on this newsletter.  The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services.

1/

MTUM Breaks Out of Long-Term Base

The iShares MSCI USA Momentum Factor ETF (MTUM) has completed a textbook cup-with-handle formation on the weekly chart, breaking decisively above the key resistance zone near $200–$210—a level that had capped price action since early 2022. This breakout validates a long-term bullish structure and favors continued strength in momentum-oriented equities.

The ETF formed a well-defined “cup” bottoming in 2022–2023, followed by a shallow “handle” consolidation around $225, now resolved to the upside.

The breakout has propelled prices to new all-time highs, with MTUM currently trading at $236.90.

📉 Momentum Divergence Signals Potential Pause

Despite the bullish breakout, the weekly RSI is flashing a bearish divergence. While price continues to set higher highs. The current RSI reading stands at 63.85, below overbought levels, but unable (so far) to break its own downtrend line (highlighted in orange). This divergence suggests that momentum is fading, even as price advances.

The breakout from the multi-year base is a clear bullish development, but fading relative strength warns of potential short-term exhaustion. This does not invalidate the breakout but raises the likelihood of a consolidation or pullback phase before the next leg higher.

Potential upside target: $250–$260 based on technical extensions.

2/

Defensive Sectors Underperforming Suggest a Risk-On Environment 

The relative performance chart of defensive sectors—Consumer Staples (XLP), Utilities (XLU), Health Care (XLV), and Real Estate (XLRE)—versus the S&P 500 (SPY) shows a clear pattern of underperformance across all lines.

🔻 Key Observations:

• XLP/SPY has been trending lower since its February 2025 peak, confirming that consumer staples are losing relative strength.
• XLU/SPY and XLV/SPY are also rolling over, suggesting that investors are rotating out of traditional safety trades.
• XLRE/SPY exhibits one of the steepest drops, indicating diminished interest in rate-sensitive sectors.

This broad-based weakness in defensive sectors contrasts sharply with the MTUM breakout analyzed earlier—where momentum stocks are hitting all-time highs and validating bullish patterns.

The simultaneous breakout in momentum (MTUM) and weakness in defensive sectors supports a classic “Risk-On” regime:

• Investors are showing preference for growth-oriented, high-beta names over capital-preserving, low-volatility sectors.
• This kind of risk appetite rotation tends to occur during macroeconomic optimism, easing credit conditions, or periods of earnings upside surprises.

This regime shift favors cyclical sectors and high-momentum strategies, while defensive exposure may lag.

3/

Large-Cap Growth Coiled for Breakout — Confirms Risk-On Rotation

The Dow Jones US Large-Cap Growth Index ($DJUSGL) is pressing against multi-year resistance near the 8,750–8,800 level, a zone that previously capped price advances in late 2021 and early 2025. The structure reveals two distinct cup formations: a large multi-year base from 2021–2023, and a shorter-term cup from early 2025.

The index has been bouncing within a wide range since the 2000s, with a failed breakout in 2007 where it was unable to move beyond the 15,000 level. Recently, the index has broken through this resistance once again, drawing attention as investors watch to see whether it can sustain the move and reach higher levels this time.

Price is approaching all-time highs, having recovered sharply from the Q1 2025 pullback. The dual cup-shaped bases show that buyers have persistently accumulated growth exposure during drawdowns.

A breakout above resistance could unleash a fresh leg higher.

This chart reinforces and validates the conclusions drawn from the MTUM and sector rotation charts:

The breakout in momentum stocks (MTUM) shows that investors are rewarding trend strength and growth leadership. It’s a leading signal of bullish sentiment. As shown previously, defensive sectors are underperforming SPY. This sector rotation away from safety is classic Risk-On behavior.

The Large-Cap Growth Index is now aligning with this regime — setting up for leadership participation, a necessary condition for strong bull markets. If resistance is cleared, growth stocks could become the dominant force in the second half of 2025.

4/

Small-Cap Value Joins the Risk-On Rotation with Breakout Attempt

The Dow Jones US Small-Cap Value Index ($DJUSVS) has recently broken above a major horizontal resistance that had capped prices since mid-2021. This multi-year ceiling, around the 4,900 level, was tested multiple times without success — until now. The breakout marks a significant shift in sentiment and confirms broader participation in the current rally.

The index formed a 2+ year consolidation base, essentially a large accumulation rectangle. The Q1 2025 correction found support near the 61.8% Fibonacci retracement, followed by a strong rebound. Price has now reclaimed former highs and is holding above 5,060, confirming a bullish breakout structure.

This breakout adds another critical layer to the Risk-On thesis established by the prior charts. Now joining the move with a clear breakout, suggesting broadening market breadth and participation from less crowded areas of the market.

The simultaneous strength in momentum, growth, and now small-cap value confirms broad market participation — a key hallmark of sustainable Risk-On environments. With defensive sectors lagging and multiple leadership groups emerging, the market is sending a clear signal: investors are embracing risk.

—

Originally posted 3rd July 2025