Sometimes it's worth looking outside the U.S. for opportunities. As April unfolded with a pullback in the U.S. stock market, we looked to other countries for some setups. We picked an Argentina ETF, which included former leader MELI stock, for some light exposure. Here's how we handled it.
Why ETFs Got More Attention
April was a month where protecting capital was paramount. Especially in the second half of April after the Nasdaq composite and S&P 500 dropped below their 50-day moving average lines. As we shifted our exposure lower, our average exposure was less than 20% from April 15 to April 30.
Not only did we reduce exposure, we also had over half of our trades during that time in exchange traded funds. Why? There were moments where the markets looked like they could right themselves, but there was extra volatility that made it a bigger challenge. ETFs typically have lower volatility than stocks. So between our smaller position sizes and focus on ETFs, we lowered our risk.
Going Outside Of The U.S.
Two ETFs that caught our attention included SPDR Euro Stoxx 50 and Global X MSCI Argentina. The Argentina ETF has over a 16% weight in MercadoLibre, but looked much stronger than the individual stock.
In mid-March, the ETF made a strong move above its 50-day moving average (1). As April started (2), it actually broke out and made some progress before testing its buy point and 10-week moving average again.
Dan Fitzpatrick explains why you shouldn't lower your standards in a market pullback
When it bounced strongly from those areas of support, the relative strength line hit new high ground (3). Sure, it's largest component, MercadoLibre, was still in a downtrend. But there was enough strength elsewhere in Argentina to more than make up for MELI's shortcomings.
Capturing Some Green Ahead Of MELI Earnings
The Argentina ETF gave one more test at its 21-day line and then joined SwingTrader when it bounced from the line (4). We went with just a half-size position and kept our stops tight for most of our trades as the market pulled back. As a result, we minimized the damage even though there were a string of losses in a row.
When looking at the average volume on the ETF, it might cause concern that it had less than 100,000 average daily volume. We don't venture into stocks that low in liquidity, but we will with ETFs. Because they are usually involved in like exchanges for the stocks they own, even low-volume ETFs can handle spurts of activity as arbitrage between holdings and the ETF smooths any supply or demand imbalances.
The problem with the position is that it didn't move very much. Because we had a string of losses, we wanted to get some wins on the board. In other words, once we had a gain we didn't want to lose it. As a result, the Argentina ETF came off just a few days later when progress stalled (5).
It was also the day before earnings for MercadoLibre. With MELI jumping nearly 10% after its earnings report, our Argentina ETF popped more than 4% without us. But we also know that if MELI earnings went the other way, our green shoot would have been trampled.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
