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Two ETF Trades to Beat the Market in December


It’s time to unveil December’s two new ETF trades…

If you’re just tuning in, these ETF trades come from a strategy I used when I managed $200 million about a decade ago.

This is a strategy I’ve been writing about for two months now, describing the rules and the specific way that we implemented the strategy at my firm.

In short, we trade the highest-ranking ETFs in the market. We judge their rank by how far they’re trading above their 6-month moving average, in conjunction with their relative strength.

We’re looking to launch this strategy as a new advisory in the coming months, at a more accessible price to new traders. These ETF recommendations will come with actionable options ideas, as well.

So consider these issues, at the start of each new month, as a free teaser for how this strategy will look once we launch.

Now, let’s discuss this month’s trades…

Top ETFs to Trade This Month

Today, I have new buy signals in SPDR S&P Semiconductor ETF (XSD) and iShares Russell Top 200 Growth ETF (IWY).

I’m not surprised to see these two at the top of the list of 435 ETFs I’m tracking…

Semiconductors seem to be the key to unlocking the global supply chain. Companies in this sector are racing to increase supply. At the same time, prices will go up even more than they already have.

The largest positions in XSD include Advanced Micro Devices (AMD) and NVIDIA (NVDA). That much should be obvious.

But the ETF also holds large positions in companies making some of the raw materials for the Green New Deal like First Solar (FSLR) and SunPower Corp (SPWR). This makes XSD attractive to investors looking to trade the recently passed Build Back Better Act.

Most importantly, though, the ETF is trading well above its 6-month moving average — a key metric for selection.

(Click here to view larger image.)

IWY, meanwhile, holds stocks in the most attractive parts of the market.

The Russell 200 is an index of the 200 largest growth stocks. Institutional investors have been buying large-cap stocks to increase their equity positions. Growth stocks have been outperforming value for some time, and that outperformance attracts more investors.

It holds stocks like Microsoft (MSFT), Tesla (TSLA), Apple (AAPL), and Meta Platforms (FB) — the stocks that tend to guide and lead the market higher.

IWY’s chart also makes it clear why this is a top-ranking ETF for December.

(Click here to view larger image.)

It’s Time to Close ARGT

I’ve been making recommendations based on this strategy since October. Of the four recommendations so far, the Global X Lithium & Battery Tech ETF (LIT) shows a 16% gain while the other three — the Global X MSCI Argentina ETF (ARGT), the Invesco DB Commodity Index Tracking Fund (DBC), and the iShares MSCI India ETF (INDA) — show losses.

Two of the positions offer exposure to emerging markets, specifically ARGT and INDA. These markets got hit by concerns about the latest coronavirus mutation. DBC was trading sideways on the month before it also got smacked on Black Friday.

But my strategy doesn’t rely on the news to make trade decisions. It relies on quantitative rules. And those rules say it’s time to sell ARGT.

We sell when the ETF is no longer a market leader. Remember, we buy the strongest ETFs in the market, with strength defined as the relationship between the closing price and the 6-month moving average. All the ETFs I follow are ranked by this relationship. We sell a holding when it is no longer in the top 30% of this ranking.

When selling ARGT, be sure to check the ETF’s net asset value. The NAV is the value of all the fund’s positions. In normal markets, the ETF trades within a few cents of its NAV. As global markets sold off, ARGT has traded more than a dollar below its NAV at times.

During the trading day, many brokers report a value known as the indicative net asset value (iNAV) which is updated every 15 seconds. Placing an order near the iNAV could lead to a better exit price.

After selling ARGT, we will be holding five positions. This is still a relatively diversified portfolio with positions in large-cap growth stocks, the energy sector, and emerging markets. LIT and XSD both offer access to the solar sector, now especially attractive as the Democrats spending bill has passed.

This portfolio is well-positioned to outperform the broad market in the coming months.


Michael Carr, CMT, CFTe
Editor, One Trade

Chart of the Day:
All Eyes on ETH

(Click here to view larger image.)

Ethereum (ETH), charted against Bitcoin (BTC), is right in the middle of a significant breakout.

I’ve called out this chart a few times before. It represents Ethereum’s price gains against the king of cryptocurrencies, Bitcoin. The higher this chart goes, the more you can expect Ethereum and the overall altcoin market to outperform BTC.

This ratio pair topped out at 0.15 during the 2017-2018 crypto bull market. If we reached those highs today, and BTC price stayed the same, that would equate to an ETH price of roughly $8,700.

Of course… BTC will likely rise along with ETH and the entire crypto market as we head into this final leg. That obviously corresponds to much higher prices for ETH, should the ratio reach and even exceed the previous all-time high.

A few months back, when BTC began to recover after its summer lull, I proclaimed it was “Bitcoin Season.” I now see that I was incorrect.

Alts and Ethereum have made significant gains against bitcoin in that span. And it’s clear to me that the opportunity in crypto right now is in strong altcoins. They will likely outperform bitcoin until the cycle tops out — in my estimation, that should happen in Q1 2022.


Mike Merson
Managing Editor, True Options Masters

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