Client Newsletter Example: Why ETFs Are Better Options for Traders/Investors Right Now - Key Bounce Levels for Index ETFs and Oil Trades Updated : Viking Crest

Client Newsletter Example: Why ETFs Are Better Options for Traders/Investors Right Now - Key Bounce Levels for Index ETFs and Oil Trades Updated

Published on January 5, 2024 @ 6:49am

Major index ETFs are approaching key bounce levels, while oil remains somewhat volatile for the time being. However, we received notice this morning that Israeli fighter jets are on their highest alert since the war started on October 7th. Here are the details on all of it, along with why index and sector-based ETFs are a better option right now than individual company names:

Why ETFs Are Better Options for Traders/Investors Right Now - Key Bounce Levels for Index ETFs and Oil Trades Updated

So far this year, which has obviously only been four trading days now, we've yet to suggest an individual company name for a bullish trade or investment. Instead, we've been focusing on ETFs, specifically those ETFs tracking three of the four major indexes, as well as those leveraged and non-leveraged ETFs tracking the oil sector.

Why? There's a time for stock-picking individual company names and a time to focus more on sectors and/or the major indexes via those leveraged and non-leveraged ETFs tracking them. And right now, with the NASDAQ 100, S&P 500, and DOW trading around all-time highs, we're just not all that interested in getting too aggressive with any individual company ideas, at least not until we see what actually happens with the major indexes over the next several days.

Additionally, when markets turn south, it's always going to be your individual company names that end up taking a much bigger beating than your sector and/or index-tracking ETFs. However, this isn't to say there aren't going to be trading opportunities, because no matter what type of market environment we're in, there are always going to be trading/investing opportunities.

Still, ETFs are safer, typically more conservative (if they're non-leveraged), and traders/investors aren't subjected to the potential meltdown of any one particular name. And in this current market environment, with most of your major indexes around all-time highs, it's just not a good idea yet to be overly exposing anyone to too many individual company names.

Furthermore, for those who are looking to potentially pick up better-than-average gains, there are always those leveraged ETFs. Nowadays, there are leveraged ETFs for just about every sector, financial instrument and index out there.

In summary, we'll continue to stay focused on ETFs for the time being. Whether or not you want to participate in leveraged ETFs or not, however, is up to you. Just remember leveraged ETFs are not designed to be long-term investing vehicles. They are merely short to mid-term trading vehicles, as they do erode with time because they are tied to the options markets - that's what gives them the leverage.

The bottom line is you'll know when we're adopting more of a risk-on strategy when we start getting more aggressive suggesting individual company names vs. ETFs.

With that, provided here are daily charts of the NASDAQ 100 (QQQ), S&P 500 (SPY), and Russell 2000 (IWM). Yesterday, we reiterated potential bounce levels on QQQ at $395, SPY at $462, and IWM at $189. As you can see, they're all getting closer to those levels.

If you want to play a potential bounce, you can do that. If you want to leave it alone, there's nothing wrong with that either. If you're looking for leverage, you can use TQQQ for QQQ, SPXL for SPY, and TNA for IWM. You are, however, going to have to employ at least a 5% protective stop on each in the event these markets don't bounce soon.

In summary, when you consider how these markets have continued to behave for well over two years now, one would expect a sharp bounce soon, especially since we do have some solid technical context behind our reasoning.

However, there's always the possibility that the major indexes just keep moving lower and lower, meaning there is no reward without risk. Therefore, when it comes to trading anything on a short to mid-term basis, always pre-plan the trade and then trade the plan. In other words, always calculate what you might be willing to lose, and go from there.

As for upside targets on the above, let's see first if they start to behave well as soon as today or as late as Monday. Then, we'll have a better idea of what we'll be looking for to the upside on all of them. For now, however, we'll tread carefully and keep you abreast of what's taking place and, more importantly, what we believe is going to be the markets' next big move.

Oil managed to maintain its typical whipsaw-type activity yesterday - with XOP moving slightly below Wednesday's low and the price of light crude holding above Wednesday's low. This morning, we've got both up a little on the open.

Provided below are updated daily charts of both, and as you can see, both are up a little in the morning. While we would clearly love to see the price of oil continue higher, we're really going to need XOP to move above yesterday's high at some point over the next few trading days.

As long as that happens, our previously suggested oil trades via UCO, GUSH, and XOP should all do well. Honestly, if the price of oil does continue higher, which is what we've been expecting for a few days now, I don't see how XOP doesn't move higher as well.

Nevertheless, we'll continue to keep you closely updated here on all of it, at least until a point they have achieved levels to suggest they're going even higher, or we're forced to cut the trades and bag them as losses.

Have a nice weekend. We'll see you on the other side.

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John Monroe - Senior Editor and Analyst