MELI stock was in a downtrend, but this Argentinian ETF had relative strength

Sometimes it’s worth looking outside the US for opportunities. As April unfolded with a pullback in the US stock market, we looked to other countries for some setups. We chose an Argentinian ETF, which included former leader MELI shares, for some light exposure. Here you can read how we went about it.


Why ETFs received more attention

April was a month in which capital protection was paramount. Particularly in the second half of April, after the Nasdaq composite and the S&P 500 fell below their 50-day moving averages. Because we shifted our exposure downward, our average exposure from April 15 to April 30 was less than 20%.

Not only did we reduce exposure, we also had more than half of our trades in exchange-traded funds during that period. Why? There were times when it looked like the markets could handle themselves again, but there was added volatility that made it more challenging. ETFs generally have lower volatility than stocks. So through our smaller positions and our focus on ETFs, we have reduced our risk.

Go outside the US

Two ETFs that caught our attention were SPDR Euro Stoxx 50 (FEZ) and Global X MSCI Argentina (ARGT). The Argentinian ETF has a weighting of over 16% MercadoLibre (MELI), 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 began (2)it actually broke out and made some progress before retesting its buy point and 10-week moving average.

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When it bounced powerfully from those support areas, the relative force line hit new high ground (3). To be sure, its largest component, MercadoLibre, was still in a downtrend. But elsewhere in Argentina there was enough strength to more than make up for MELI’s shortcomings.

Capturing a piece of green before the MELI income

The Argentina ETF made another test of its 21-day line and then joined SwingTrader in bouncing off the line (4). We went with just a half size position and kept our stops tight on most of our trades as the market pulled back. As a result, we kept the damage to a minimum even though there was a series of losses in a row.

Looking at the average volume on the ETF, it could be troubling that the average daily volume was less than 100,000. We do not venture into shares with low liquidity, but we do invest in ETFs. Because they tend to be involved in similar exchanges for the stocks they hold, even low-volume ETFs can handle bursts of activity as arbitrage between holdings and the ETF smooths out any supply and demand imbalances.

The problem with the position is that it didn’t move much. Since we were on a losing streak, we wanted to get some wins on the board. In other words, once we had a profit, we didn’t want to lose it. As a result, the Argentina ETF disappeared just a few days later as progress stalled (5).

It was also the day before the win for MercadoLibre. While MELI rose almost 10% after the earnings report, our Argentina ETF rose more than 4% without us. But we also know that if MELI revenues went the other way, our green shoot would be trampled.

More details about past trades are accessible to SwingTrader subscribers and test subjects. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.


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