How Active Traders Look Beyond the S&P 500

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How Active Traders Look Beyond the S&P 500

Both media outlets and many individual investors often concentrate on the well-known firms that make up the S&P 500. The firms in that category are well-known and among the most reliable investments in the world due to their large- and mega-cap status.

Active traders sometimes feel the need to go beyond the top 500 businesses and seek exposure to the other publicly listed firms in the market. In this post, we’ll examine how certain traders use this concept and discuss a few concepts that are probably going to be popular among traders in the next weeks.

Key Takeaways

  • Active traders may want to think about exchange-traded funds (ETFs) like the Vanguard Extended Market ETF if they’re searching for exposure outside of the S&P 500. (VXF).
  • VXF and its top holdings’ chart shows nearby support levels, making this group of companies one to keep an eye on in the latter months of 2020.

Vanguard Extended Market ETF (VXF)

Exchange-traded products like the Vanguard Extended Market ETF are good options for active traders who are particularly interested in acquiring exposure to almost all U.S. companies other than those that are part of the S&P 500 Index. You can see from the chart below that the price movement on retracements toward the long-term moving averages and dotted trendlines has favored the bulls.

The long-term uptrend is still very much in place, as seen by the robust rebounds off the highlighted support levels. Depending on risk tolerance and investing objective, the risk/reward combinations might make the present levels an intriguing purchasing opportunity.

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Tesla, Inc. (TSLA)

Back in September, there was a lot of buzz about Tesla, Inc. (TSLA) entering the S&P 500 index, but it never happened. What should be noted is that many of the top holdings of VXF may merit closer attention due to their strong growth characteristics as they are likely to be added at some point in the future due to their growth trajectories. The precise timing of when it will be added to the index is not really important in this case.

If you look at the chart below, you’ll see that Tesla stock has been among the best performers of 2020 and seems to be in a good position for a rise higher in the next weeks and months. Technical analysts will probably try to purchase at present prices and, depending on risk appetite and perspective, hedge against a change in fundamental mood by setting stop-loss orders below $422.61 or the climbing trendlines.

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Zoom Video Communications, Inc. (ZM)

Zoom Video Communications, Inc. is a different prominent holding of the VXF ETF that could be worth more investigation (ZM).One of the beneficiaries of this prevailing trend has been Zoom Video Communications, which has seen levels of astounding growth as more and more individuals across the globe find themselves working from home and searching for new methods to contact with family and friends.

The stock price has been moving along a clearly defined rising trendline, as can be seen on the chart. Trend traders will probably try to purchase close to present prices in the hopes that a rebound will occur toward the swing high of $588.84. The likelihood of stop-loss orders being set below the dotted trendline is high in order to guard against a move into the longer-term support levels.

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The risks and potential benefits of investing in themed ETFs are greater than those of investing in the larger ETF market. Investors should be mindful of the risks associated with investing in these specialized ETFs, but if done properly, themed ETF investments may provide exceptional returns.

The Bottom Line

The biggest corporations in the economy—which are often members of the S&P 500—remain the primary focus for many traders. However, it would be worthwhile to take a closer look at the VXF ETF and its top holdings for individuals hoping to extend their perspective on the markets.

Casey Murphy had no ownership interest in any of the assets listed at the time of writing.

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