How Active Traders Look Beyond the S&P 500

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How Active Traders Look Beyond the S&P 500

Many retail investors and media stations alike often lock their focus onto the well-known companies that comprise the S&P 500. The large- and mega-cap nature of the companies in that group make them household names as well as some of the most stable investments in the world.

In some scenarios, active traders find themselves wanting to branch out beyond the top 500 and look to gain exposure to the rest of the commonly traded companies in the market. In this article, we’ll look at how some traders put this idea into action and consider a couple of ideas that are likely to catch the attention of many traders over the weeks ahead.

Key Takeaways

  • Active traders seeking exposure outside of the S&P 500 might explore exchange-traded funds (ETFs) like the Vanguard Extended Market ETF (VXF).
  • Nearby support levels on the VXF and its top holdings charts make this group of stocks one to keep an eye on in the last months of 2020.

Vanguard Extended Market ETF (VXF)

Active traders who are most interested in gaining exposure to virtually all of the U.S. stocks with the exception of those included in the S&P 500 Index should consider checking out exchange-traded products such as the Vanguard Extended Market ETF. Looking at the chart below, you will notice that price action on retracements toward the support of the dotted trendlines and long-term moving averages have been in the favor of the bulls.

The strong bounces from the identified support levels are technical indications that the long-term uptrend is still well in place. The risk/reward setups could make current levels an interesting buying opportunity, depending on risk tolerance and investment outlook.

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Tesla, Inc. (TSLA)

There was no shortage of talk about Tesla, Inc. (TSLA) joining the S&P 500 index back in September, which did not end up coming to fruition. The exact timing of when it will be added to the index is not really important here, but what should be noted is that the strong growth characteristics of many of the top holdings of VXF could be worthy of closer attention since they are likely to be added at some point in the future due to their growth trajectories.

Looking at the chart below, you’ll note how Tesla stock has been one of the top performers of 2020 and looks well positioned for a move higher over the weeks and months to come. Followers of technical analysis will most likely look to buy near current levels and protect against a shift in sentiment of underlying fundamentals by placing stop-loss orders below $422.61 or the ascending trendlines, depending on risk tolerance and outlook.

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Zoom Video Communications, Inc. (ZM)

Zoom Video Communications, Inc. is another top holding of the VXF ETF that may be worth investigating further (ZM).As more individuals across the globe work from home and seek innovative methods to contact with family and friends, Zoom Video Communications has benefited from this prevalent trend and seen astounding growth.

Looking at the chart, you can see that the stock price has been moving along a well-defined rising trendline. Trend traders will almost certainly attempt to purchase around present levels in expectation of a rebound toward the swing high of $588.84. To guard against a move toward longer-term support levels, stop-loss orders will most likely be set below the dotted trendline.

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Investing in themed ETFs entails greater risks and perhaps larger returns than investing in the wider ETF sector. Investors should be mindful of the risks associated with investing in these specialty ETFs, but if done correctly, themed ETF investing may produce exceptional returns.

The Bottom Line

For many traders, the emphasis remains on the biggest corporations in the economy, which are almost always S&P 500 components. However, for individuals wishing to diversify their market perspective, the VXF ETF and its top holdings may be worth considering.

Casey Murphy did not hold any of the assets listed at the time of writing.

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