One month ago, I shared two trades with you based on the strategy I used when I managed money.
This strategy ranks the top-performing ETFs based on their previous six-month performance. Whichever ETFs were trading the most above their 6-month moving average — a measure of their relative strength — would be the ETFs we held each month.
In October, those were the Global X Lithium & Battery Tech ETF (LIT) and the Global X MSCI Argentina ETF (ARGT). Since then, LIT is up more than 13.3% while ARGT is down about 0.5%. An average gain of 6.4%, or about the same as the S&P 500 in that span.
My colleague Chris Cimorelli bought call options instead of the ETFs and fared much better.
I recommend continuing to hold both LIT and ARGT. If ARGT doesn’t rally this month, I may recommend selling.
Sell decisions are based, like buys, on relative performance. The signal will only come if the ETF continues to underperform the broad stock market.
With this strategy, we are slow to sell because long-term winners do experience brief dips in their uptrends. I’ll be reviewing the details on selling on Friday.
But for today, I have two new buy recommendations…
I do understand the timing of my recommendations is uncomfortable. The Federal Reserve is meeting today and is likely to announce some important policy changes tomorrow.
But this strategy doesn’t consider the Fed. It only considers which ETFs are trading in the strongest technical patterns — those that are trading the highest above their 6-month moving average.
Ten years ago, when I managed over $200 million using this strategy, my rules were to trade at the beginning of the month and I’m following those same rules today. That means I will ignore the news and the current market action.
I’ve traded in crashes and bubbles with this strategy. The key is to follow a rigid discipline, no matter the environment.
November’s Top ETFs
Today’s recommended trades are both buys — the Invesco DB Commodity Index Tracking Fund (DBC) and the iShares MSCI India ETF (INDA).
DBC is an inflation trade. This ETF tracks a commodity index. It holds exchange-traded futures on crude oil, natural gas, heating oil, gasoline, corn, copper, gold, silver, and other commodities.
You may have seen headlines related to some of these markets. Oil and copper are at multi-year highs. You probably don’t need to follow the financial news to know that gasoline is much more expensive.
DBC offers diversified exposure to these markets. Commodity futures are the most direct way to trade inflation since these markets are likely to experience the biggest gains.
But commodity futures aren’t appropriate for most individual investors. They are riskier than stocks, and losses can exceed your total investment.
DBC eliminates that risk, and it spreads risk over the energy, food, and metals markets — which should limit the downside if there are sharp reversals in some commodities.
INDA is a trade on a country that could lead the global economy higher. India’s GDP fell about 8% in the pandemic and is now expected to grow by 9% in the recovery.
Investors have expected rapid growth from India for years, and they’ve often been disappointed. This time could be different. As the world returns to normal, supply chains are being reevaluated, as are strategic relationships. India could benefit if there is a significant shift away from China.
Of course, that is a long-term reason to invest in INDA. In the short run, my recommendation is based on the fact that INDA has been a top performer over the past six months.
While my system is designed to focus solely on performance, using ETFs has always led to a diversified portfolio and we are seeing that in the first four picks.
We now have exposure to tech (by way of lithium and batteries, critical components of most technology), emerging markets, and commodities. These are themes investment firms are actively promoting and we are gaining exposure based on a rules-based strategy.
We’ll cap off the month of November by taking a look at how our growing portfolio has performed against the broad market, and bring you new recommendations at the start of December.
You might consider trading call options on one or more of these ETFs, like Chris did, to leverage the gains I expect we’ll see and outperform the market even more.
Michael Carr, CMT, CFTe
Editor, One Trade
Chart of the Day:
Nail-Biting Price Action
It seems like all is right with the market right now…
Tesla is in price discovery. The last earnings season of the year is coming in strong. The big three major indexes are all at all-time highs. Even the Russell 2000 is finally catching up!
Yet still, all the enthusiasm prompts me just to look at this weekly chart of SPY, and the blue resistance line we just ran headlong into.
I first pointed out this line last week. It’s the long-term support going all the way back to the initial pandemic panic recovery. The S&P 500 dutifully respected this line as support for a year and a half… until August, when it broke down through it.
Now, the week has come where we’re right up against the line, and the S&P 500 has retreated from it, just ever so slightly.
The start of something worse, or just the market making a tiny gesture of respect toward my technical analysis?
There’s really no way to tell right now. But if the S&P 500 doesn’t close the week above this line, I’d have to keep my eye on the short-term bear case for the time being.
Managing Editor, True Options Masters