Summary
- The Invesco QQQ ETF is the new economy blue chip index you are looking for young Jedi.
- ARKK is the “smart everything world” ETF you want as a core position on this pullback if you have your eye on the future.
- Solar, Semiconductors and Gold are all worthy sector positions for an eventual rebound.
- Oil stocks are dead and buried. Lay flowers at their graves. Expect take privates and zombies soon.
All corrections are a chance to upgrade your asset allocation to higher quality and higher growth. This correction is no different.
We are at the beginning of the 4th Industrial Revolution. The “smart everything” and alternative energy worlds are coming fast. The developing disruptions will have more impact on humanity, than everything we saw from the steam engine to cell phones, all poured into about a decade.
Take the time to move away from investments that do not somehow benefit from the ideas in the graphic. While not all investments will be technology related, virtually all industry leaders will be able to benefit from the listed technologies and will find a way to do so.
Many companies will “go to zero” or shrink significantly from being disrupted by these techs. Avoid those industries and companies to reduce your risk and improve your performance.
Below are several ETFs that are highly likely to outperform the stock market, as represented by the S&P 500 (SPY) (VOO) and reduce your overall risk with proper asset allocation.
The Invesco QQQ ETF (QQQ) Is The Best Large Cap Index
We have compared QQQ to the SPDR S&P 500 ETF (SPY) and Vanguard 500 ETF (VOO) before. The QQQ is simply made up of better companies than SPY and has outperformed inclusive of the dot-com crash for total return.
QQQ holds the stocks of the NASDAQ 100. That is 100 companies led by Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOG) which represent about 39% of the fund.
Over the last ten years, this disparity has been even more pronounced as more companies in the S&P 500 have been challenged with change.
The simple reason for this is secular in nature, that is, long-term. This is not a cyclical circumstance to be gamed. It is a very long-term trend to be respected.
Here is the QQQ monthly chart which largely shows institutional and societal investing trends.
As you can see, the monthly RSI is NOT oversold yet. QQQ is however hitting minor support levels, which indicate we could see a short-term relief rally. If we do, you will want to be a seller at some point. Eventually, the major support levels are very likely to be met.
Here is the weekly QQQ which shows a short-term term timeline:
We can see that the weekly is almost oversold, but not quite. Money flow is almost negative, but not quite. MACD, which represents momentum, indicates that there is still downside in the short-term.
Here is the daily QQQ chart:
Here we see that the daily RSI is oversold. Money flows are negative. MACD momentum is very downward trending. The open on Tuesday will likely be lower, but we could see a late day rally. That rally could sustain a day or two, however, given what we see on the weekly and monthly charts, I would be surprised to see Friday in the black.
What this tells us is that there are some day trading opportunities. That’s not our game though. I am willing to swing trade though and the trade I am waiting for is the daily and weekly to both be oversold. That will likely signal a more substantive relief rally.
I currently have buy orders for QQQ at $150. Nothing higher. I can adjust that price as the charts tell me to. For now, $150 on QQQ represents the area just above the major supports kicking in.
In the Global Trends ETF strategy, QQQ can work it’s way up to being 50% of an asset allocation. In portfolios inclusive of both stocks and ETFs, then QQQ is more likely to be about 25%. The Invesco QQQ ETF is your core ETF.
ARK Innovation Fund (ARKK) For Focused Growth
The concepts supporting the ARK Innovation fund are solid and the pervasive secular economic trends in the economy today. Cathy Wood is a strong manager with a good track record. That said, she is fallible and that’s why we hold more QQQ than ARKK. The fund’s performance has been outstanding since inception:
Some of ARKK’s gain is from Wood’s management, as this ETF is not a passive index. The asset allocation is very strong and as we know, asset allocation represents 50-90% of performance and volatility depending on portfolio characteristics.
I currently have buy orders for ARKK at $38. Nothing higher. I can adjust that price as the charts tell me to. For now, $38 on ARKK represents ta major support zone of the stocks in the underlying portfolio.
ARKK can represent up to 12-16% in the Global Trends ETF portfolio, but likely rises only 4-12% in stock plus ETF portfolios. In a stock plus ETF portfolio think of ARKK as holding several stocks even though there are about 30-40 in it at any given time.
Your asset allocation is a risk decision based on your circumstances and judgment. The key risk with ARKK is that Cathy Wood goes into a trading slump, which happens to everybody from time to time. She’s still a home-run hitter, but you have to be willing to accept she takes the golden sombrero some year.
A Strong “New Economy” Core With QQQ + ARKK
With overlap, you will have exposure to roughly 130 stocks in portfolio sleeve including QQQ and ARKK. Consider this sleeve as a core “new economy” portion of your overall holdings.
I would consider most of the stocks in QQQ as blue chips. Those companies hold approximately 70% of all cash on American corporate balance sheets.
ARKK holds companies like Tesla (TSLA), Square (SQ) and Illumina (ILMN) as top holdings. Several of the companies are also in QQQ, however, are traded, not indexed. ARKK also holds a few international stocks.
For an all ETF portfolio, having 50% in QQQ and 16% in ARKK is a solid mix. Make sure to scale in at different support levels.
The 2020s Will Be The Solar & Storage Decade
Growth rates for solar are expected to exceed 20% per year according to the Solar Energy Industries Association. Battery storage and energy management systems will roughly keep pace.
As climate change mitigation becomes law and practice among corporations growth will continue to be strong. After previous washouts, the survivors in solar are well financed. The solar industry also broadly has government regulatory supports and tax breaks.
During the 2020s, except an acceleration of the move away from coal and towards alternative energy. Already in Indiana, which has the most coal fired electricity generation as a percentage of total generation of any state, an operating coal fired power plant is scheduled to be torn down and replaced by alternative energy generation and storage. This is monumental as the utility cited millions in cost savings over 10 and 20 years.
Investing in solar is easy with the Invesco Solar ETF (TAN). It is by far the leading solar ETF by assets under management and has options for trading or enhancing income. I anticipate this to be one of the top performing ETFs of the 2020s. Over the past 3 years it has done quite well already:
As you can see below, TAN on the weekly is not yet oversold. However, on the daily it is just about there. We likely need at least another week or two to see it bottom out.
I currently have buy orders for TAN at $26. Nothing higher. I can adjust that price as the charts tell me to. For now, $26 on TAN represents the bottom of a major support zone. There is downside to around $20, so scale in slowly.
TAN can represent up to 6-12% in the Global Trends ETF portfolio, but likely only 4-8% in stock plus ETF portfolios as those are likely to own 2 to 4 individual solar names as well.
Semiconductors Make The “Smart Everything World” Go
Semiconductors are the brains that make the the smart everything world smart. Semiconductors power the AI behind machine learning. While cyclical in nature, the long-term secular trend is decidedly up on this top performing sector.
I primarily recommend the iShare Semiconductor ETF (SOXX) as it is the cheapest, biggest, best performing and has a liquid options market.
Top holdings include Nvidia (NVDA), Intel (INTC), Texas Instruments (TXN), Qualcomm (QCOM) and Broadcom (AVGO). All of these are also components of QQQ.
One thing should jump out at you about SOXX on the monthly charts. It has tremendous positive institutional bias. It is augmented by a robust trading community as well. That gives it more volatility, but also plenty of upside on multiyear rallies.
Like our other ETFs it is not quite oversold on the weekly charts, but is there on the daily.
I currently have buy orders for SOXX at $160. Nothing higher. I can adjust that price as the charts tell me to. For now, $160 represents strong support seen in December 2018. There is downside to around $100 per share, so scale in slowly minding your asset allocation, support zones and technical indicators.
SOXX can represent up to 6-12% in the Global Trends ETF portfolio, but likely only 4-8% in stock plus ETF portfolios as those are likely to own 2 to 4 individual solar names as well.
Gold Is More Than Shine
As I covered in Massive 2020s Gold And Gold Stock Bull Market Is Just Beginning there is reason to believe that the rally in gold and gold stocks is just beginning.
Not only has supply tightened in gold due to consolidation, it is a virtual certainty that central banks and governments devalue currencies massively in the 2020s to handle debt.
While I am likely to trade the SPDR Gold ETF (GLD), I am more bullish on the gold stocks found in the Van Eck Gold Miners ETF (GDX). Market leading companies Newmont Goldcorp (NEM) and Barrick Gold (GOLD) are the top two holdings in this ETF.
The monthly chart on the gold miners has been mildly bullish the past three years. I believe it is setting up to breakout of its range and then set new highs by the middle and higher highs in the late 2020s.
Both the weekly and daily charts are showing some weakness now, but nothing overwhelming. GDX is holding up well in this correction. It may or may not get oversold on the weekly, therefore, I think you can buy shares on any daily overbought signals depending on your asset allocation.
I currently have buy orders for GDX at $26. Nothing higher. I can adjust that price as the charts tell me to. Three is downside to about $20, however, $26 seems to be good support in recent months.
GDX can represent up to 6-12% in the Global Trends ETF portfolio, but likely only 4-8% in stock plus ETF portfolios as those are likely to own 1 or 2 individual gold names as well.
Disclosure: I am/we are long GDX, TAN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
