Long & Short ETF Picks for All Subscribers and Single Company Stock Picks in Our Premium Section
Today, we finish our weekend review of market conditions with a look at industry group relative strength trends. The ETF GDX, gold mining, has everything going for it except money flow, which is only neutral. It’s a persistent relative strength leader, up-trending in multiple timeframes, and the RSI has crossed from above 50 to above 60 over the past few days. It’s passed mid-field and set up almost perfectly for a score. Today’s ETF spotlight pick is a Gold Miner oriented instrument.
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We’ll also share a few other long, un-leveraged ETF picks we think could weather the ongoing market storm. In addition, we’ll spotlight some short ETF picks for more advanced traders looking for hedges or investors looking to short market weakness in accounts restricted from options or futures trading. With so-called inverse ETFs, instruments are engineered to match the opposite daily performance of the underlying, sometimes at a multiple of 2x or 3x.
For Premium Subscribers, we’ll share a few individual company stock picks that appear ready to grind out gains counter-trend or to outperform explosively should the market rediscover its bullish legs.
Long ETF Picks
Our long, unleveraged ETF picks should be viewed in the context of the current Very Bearish market environment. These are “Watchlist Only” picks in our opinion or instruments traders could buy-and-hold through the downturn with a margin of safety. Just remember: to “out-peform” major indexes in a very bearish environment doesn’t necessarily mean “go up.”
But, most of our picks maintain their long term trend and/or long term market forecast and are more likely to lead any market rebound to the upside (and withstand major market drawdown better). Should the markets become persistently bearish, these picks fit in with a statistically reliable 10% basket of stocks that usually run counter trend during a months-long bearish correction, which may be in the cards according yesterday’s market analysis
However, as always, the probabilities for superior returns relative to risks are enhanced when the market, asset class, sector, and industry are all in bullish alignment, as our years of top-down analysis will attest. That is not the case at the moment.
One other note of caution: though we tried to put a 25,000 share trading volume floor on this set of picks includes, some of these ETFs are thinly traded and should be vetted closely on charts. Sometimes money flow and other oscillators can be unduly exaggerated when volume is thin, thus inflating TW% scores. We did curate the list, but as you can see, some of these are least-worst choices (with Factor 8 - the key intermediate trend forecast oscillator - showing a non-bullish rating).
OK. That’s a lot of negativity. The one advantage in selecting instruments with TW%’s in the 50’s and 60’s when the SPY scores 8%, is that gains in the ensuing months can be spectacular. More risk delivers more reward…sometimes.
Thanks to subscriber AZCDinc, here’s a list of ETFs to import into your charting package or trading platform. Thanks for the input.
KBWP, GOAU, PWV, DBEU, DXJ, GNR, EFUT, XME, PDBC, FLIA, DFIS, TPLE.
Our Spotlight ETF Pick
The U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) focuses on companies involved in the production of precious metals, primarily through mining or owning royalties and production streams. This ETF specifically tracks an index of 28 precious metal mining companies based in regions including the United States, Canada, Australia, Hong Kong, and South Africa. The holdings are chosen based on fundamental factors and are weighted in fixed tiers.
As of April 2024, the GOAU ETF had net assets around $97.16 million and an expense ratio of 0.60%. That’s certainly expensive, but somewhat offset by its low percentage dividend yield.
The fund's performance reflects a specialized investment approach in the materials sector, particularly gold and precious metals. It has a dividend yield of about 0.88%, with dividends paid annually, influenced by the performance of its holdings which include major companies like Wheaton Precious Metals Corp and Franco-Nevada Corporation.
The fund was launched on June 27, 2017, and is managed by U.S. Global Investors, which has a long-standing track record in managing resources and precious metals investments
Short ETF Picks
Short ETFs are a different trading animal compared to our bullish intermediate trend-following strategy. None are meant to be held weeks to months, so timeframes shrink. Holding any leveraged product for extended periods runs the risk of your trade losing value, even when you get the direction right. This is due to complex leverage schemes used by ETF managers to magnify returns at 2X or 3X the INVERSE daily movement of the underlying instrument. This is deep-end-of-the-pool investing and trading.
A review of our selection criteria:
Liquidity: 1 million shares minimum recent average daily trading volume. We don’t want to get caught in illiquid leveraged instruments that noone wants to buy ever.
Moving Average: ETF must be above its 21-day exponential moving average. Price crossing above or bouncing off of a rising 21d EMA is an excellent entry strategy. I use a volatility based stop-loss orders to account for the more exaggerated fluctuations of price, generally 1 or 2 ATR below the 21 day EMA. This allows me to stay in a trade, but without incurring huge losses when direction. Sometimes I’ll trade even more tightly, leveraging entries and exists around the 10-day EMA, for example. Short trades are fasters because markets climb for weeks, but crash in just a few days.
Chaikin Money Flow (CMF) strong to FOMO. .1 CMF is good, but > .2 is better. You want big institutions buying these leveraged shorts at a Fear of Missing Out level.
Rising Relative Strength Rank Trend: Prefer ETFs in the top 1/3 rank at the 60-day look-back interval , with similar or improved relative strength rank toward the 10-day lookback interval.
B-ratings are the new A-ratings for this type of trade as long as the ETF is gaining or persisting in relative strength rank from the 60-day mark. If we wait for an A-Rating (though A’s are certainly not excluded), we can miss the move. We go faster in and out of positions when trading short, and especially leveraged short, ETFs.
Note: the leveraged inverse Nvidia ETF NVDQ only has 120 days of history, hence the feed error in relative strength ranks at the 130-day mark and beyond.
Spotlight Short ETF Pick
The Direxion Daily S&P Biotech Bear 3X Shares (LABD) is an inverse leveraged ETF that seeks to provide three times the inverse exposure of the S&P Biotechnology Select Industry Index. This ETF is designed to benefit from declines in the biotechnology sector. Each trading day, the fund attempts to achieve its investment objective by multiplying the inverse of the daily performance of the index by three. This can amplify both gains and losses, making it a highly speculative instrument.
LABD is typically used by traders looking to capitalize on short-term downtrends in the biotechnology industry without short-selling stocks. The ETF resets daily, meaning its performance can differ significantly from the inverse of the index's performance over periods longer than one day due to compounding effects.
The XBI Biotech ETF recently broke a key support level. We are looking for any broad market enthusiasm to temporarily boost the Biotech sector. As it retests its breakdown point, we can enter long LABD in the hopes of riding another downleg (which is up from LABD’s perspective as an inverse ETF). Structurally, there appears to be room to the downside for Biotech companies and upside for LABD.
The biotech sector is currently facing several challenges that may contribute to its falling out of favor with traders and investors. A key issue is the economic pressure on clinical research organizations (CROs) and biotech companies, which have been struggling with resource constraints and the complex demands of integrating new technologies like artificial intelligence and machine learning into their operations. This has been compounded by high expectations for the industry following its pivotal role during the COVID-19 pandemic .
Additionally, the industry is grappling with the increasing complexity of the biopharma supply chain, which has been strained by the introduction of new process technologies and the high cost of goods sold. This situation is pushing companies to streamline operations and innovate in drug development and manufacturing processes. That’s a drag on profits in the near term.
Financially, the biotech IPO market has significantly declined, with a 93% drop compared to previous years, and many companies now face liquidity issues, having less than a year's worth of cash on hand . This financial strain is likely contributing to the cautious sentiment among investors.
Despite these challenges, the sector continues to see some positive trends, such as a 50% increase in FDA novel drug approvals, which suggests there are still opportunities for growth and recovery. So, we will simply catch a downleg. We never “invest” in short ETFs over the long term.
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