SCHD nears title of biggest dividend ETF, but technical risks loom

The Schwab US Dividend ETF (SCHD) has continued its strong rally this year, reaching a record high of $35.30, up 27% from where it started the year. This rally has allowed the fund to outperform popular indices such as the Dow Jones, Nasdaq 100, and S&P 500. The risk, however, is that it has also formed some alarming technical patterns that could trigger a brief reversal.

SCHD may become the biggest dividend ETF as inflows jump

The SCHD ETF is on track to become the biggest dividend funds in the world, helped by its strong inflows and performance. Data shows that the fund has added nearly $20 billion in assets this year, making it one of the best gainers in the ETF industry. 

The fund now holds over $112 billion in assets, making it the second-biggest dividend ETF in the world after the Vanguard Dividend Appreciation (VIG), which has $113 billion in assets. As a result, there is a possibility that SCHD will overtake VIG as soon as this week.

The ongoing SCHD ETF surge has happened even though it tracks companies in traditional industries. Its biggest holdings are firms like Merck, Amgen, and Abbott Laboratories. Merck shares have jumped by over 40% this year, while Amgen has jumped by over 30%. 

The other top companies in the fund are Coca-Cola, Chevron, Verizon Communications, and ConocoPhillips. It also holds large stakes in companies like Home Depot, Procter & Gamble, and UnitedHealth.

These companies show that the company has no direct stake in companies in the AI industry like Nvidia, Micron, and SanDisk, which have done well this year. Its performance is, therefore, because of the ongoing hedging as some investors predict that the AI bubble will pop. 

Still, while the SCHD is beating the S&P 500 and Nasdaq 100 indices this year, it has a long record of underperforming. For example, its total return in the last five years stood at 62%, much lower than VOO’s and QQQ’s 80% and 91.4%, respectively.

SCHD ETF technical analysis: risky patterns are emerging

SCHD chart | Source: TradingView

The daily chart shows that the SCHD ETF has been in a strong rally this year and is now hovering at its all-time high. A closer look shows that it has formed an ascending channel and is now close to the upper side. In most cases, this ascending channel is usually a continuation sign in technical analysis. 

The fund has remained above the 50-day and 100-day Exponential Moving Averages, a sign that bulls are in control for now. 

The risk, however, is that it has formed a small island reversal pattern. This pattern forms when an asset gaps up and then consolidates for a while. It often results in a reversal.

At the same time the two lines of the Percentage Price Oscillator (PPO) have formed a bearish crossover and are pointing downwards. All this is happening near the upper side of the channel. 

In most cases, an asset may continue rising or reverse. A surge to $40 will be confirmed if it moves above the upper side of the channel. The alternative is that it resumes the downward trend and retests the lower side of the channel at $33.25.