Skip to Main Content
  • Search by ticker
  • Sign up for emails
  • Contact Us
  • 866-476-7523
xchange logo

Short-Term ETF Trading 2022 Outlook from Direxion

January 20, 2022

Editor’s note: Any and all references to timeframes longer than one trading day are for purposes of market context only, and not recommendations of any holding timeframe. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don’t have the resources, time or inclination to constantly monitor and manage your positions, leveraged ETFs are not for you.

Trading ETFs in 2022? Direxion’s ETF Trading Short-term Outlook

After only four weeks of trading, the lion’s share of 2022 is still ahead of us. Market strategists are happy to throw out fresh projections for earnings and prices in the coming year.

Traders, especially short-term ones, know the potential folly in following these and instead focus on opportunities as they arise. We think our crystal ball is just as cloudy as the next guy or gal, so we are offering you a Donald Rumsfeld-inspired look at 2022. To cut to the chase, expect more volatility, which is beneficial for traders. Here we highlight ETFs that traders and investors may want to consider.

Known Knowns to Factor in Your ETF Trading Strategy

Even if we hoped the pandemic would be behind us at this point, COVID-19 remains front and center. The omicron variant has thrown another wrench into markets with worst case fears around shutdowns or curtailed economic activity. Questions remain about the protection the vaccines will provide, but early data points to generally favorable outcomes perhaps for both the vaccinated and unvaccinated.

If omicron continues to prove to be highly transmittable, but more manageable with limited deaths and hospitalizations expect cyclicals like financials and energy to perform well as the economic recovery should remain intact. One should also expect travel and vacation stocks to bounce.

Conversely, economic curbs would see defensive stocks doing best. It may also help keep interest rates low and make Treasuries attractive.

Factoring in Monetary Policy in Your ETF Trading Strategy

At the December FOMC meeting, policymakers at the Federal Reserve moved to cut back on the extraordinary monetary stimulus at a faster pace than previously announced. They also indicated interest rates may rise sooner than expected. The market took comfort in the clarity offered on what the Federal Reserve would do to combat inflation as opposed to the draining of liquidity.

If the Fed moves quicker than expected, high flying tech shares will likely get hit as seen in the last couple of weeks. If there is more bark than bite, which the market is expecting as of now, tech and all its brethren, especially cloud and software names, will find support.

Playing Inflation in Your ETF Trading Strategy

A consistent improvement in the pandemic will help to resolve supply chain issues, but the pace to get there will be bumpy as demand for goods continued to outweigh services and production shutdowns linger. While the congestion at US west coast ports and semiconductor shortages seem to be improving, there labor shortages remain prevalent in key industries.

Traders can take advantage of these disruptions in a few ways. One is to tilt toward inflation sensitive plays, such as gold miners and metal miners.

Prepare for The Midterm Election Trade

While the election cycle is early, traders should be on their toes preparing. Considering the narrow margins for both the House and Senate, policy may have considerable implications depending on the outcome. If Republicans pick up either the House or the Senate, President Biden’s ability to push through bills will be challenged to a great extent. Gridlock may turn out to be a positive for markets, but any news out of the Beltway will be a case of headline risk.

Known Unknowns to Factor in Your Strategy

A China Contagion’s Impact on ETF Investing

The property sector in China has been under significant pressure over recent months. While Evergrande was the most well-known, other developers have exhibited stress with reports of hidden debts and inter-company deals. Residential property sales fell 20% from a year earlier. At the same time, retail sales slumped indicating weakness in the economy. Some are speculating the PBOC will continue to ease policy further to help after they recently cut reserve requirements for banks.

Regardless, traders are already getting comfortable stepping into Chinese names and preparing for a bounce back, especially in those listed in the US and related to the internet.

Russia Hostility Impact on ETF Investing

Russia’s potential for causing geopolitical risks remains high especially as hostilities have grown and Russian troops are assembled on the Ukraine. This would likely create a spike in volatility, which would likely abate. It make also put aerospace and defense front and center.

Meme Stocks and Retail ETFs

Meme stocks as a term did not exist until recently, but retail interest in a handful of names are come and gone likely since markets began. Last year, meme stocks centered in the retail space, which created huge moves and trading opportunities. Going forward, it is hard to tell where retail may gravitate next, but this phenomenon is not going away. ETF traders and investors looking to get into the retail sector can look to the RETL ETF.

Unknown Unknowns Affecting ETF Investing

Are you kidding? Come on! As 2022 marches forward, one thing is certain before you trade Leveraged ETF traders:  You have to know the risks.  Trade boldly.