Riddle me this, Batman: Why does it seem like everyone in the financial market keeps talking about which commodity ETFs to watch?
That’s easy: inflation.
With inflationary pressure at all-time highs right now, commodities are some of the best trades to jump on.
Commodities are basic goods used to gauge how well the economy is running, and they have the potential to be good investments in times like this. Investors can even use some commodities, like precious metals, as a hedge against inflation.
Commodities are also negatively correlated with stocks and bonds. This means when stocks and bonds fall, commodities rise… and vice versa.
When we talk about commodity stocks and funds, don’t think this doesn’t apply to you as an average trader — it most certainly does.
Every commodity you can think of has an underlying ETF that tracks them. Even water — arguably the most important resource in the world — has six different, relatively low-risk and cost-effective ETFs for traders to choose from.
Commodity ETFs allow investors to gain exposure to different commodities with less risk and less money. Having numerous ETFs in a trading portfolio lets investors hand design their ideal commodity exposure.
And as Joy of the Trade Head Trader Jeff Zananiri and I are about to explain, I have my eye one one in particular…
Teucrium Corn Fund (NYSEArca: CORN) is a top fund that tracks corn.
Corn happens to be one of the world’s most widely farmed crops. It’s also needed in things that most people are unaware of: starch, sweeteners, corn oil, drinks, alcohol and fuel ethanol.
This not only makes corn a good investment opportunity, it also makes it a stable one — for the most part.
Right now corn is pulling back from a swing high, and we think there’s a nice trading opportunity coming soon.
Copper is another commodity that has ETFs to watch, and it looks interesting to Jeff right now. While he doesn’t think it’s had any stellar moves lately, if it breaks another 5% lower, then we could see a nice run on copper to the downside.
Remember, he likes shorting and fading stocks, so these are the types of moves that get him going.
Keep in mind that copper is the truest economic indicator of inflation that there is in the market. So its movements are a big tell to what’s going on under the hood of the economy — and things aren’t looking pretty right now.
Copper is always forward-looking. If it starts to fall out of bed, then that’s telling us this economic boom isn’t as robust as the talking heads claim…
But the problem is people are getting confused and think a high copper price means there’s a lot of inflation, and vice versa with a low price. While that does happen sometimes, this isn’t the case now…
What’s happening now is there is inflation, and copper’s pulling back and going into other commodity stocks.
And it seems every bit of money that’s flowing out of copper is going into one commodity ETF in particular.
Check out our short video below to learn more about the third commodity ETF to watch. Be sure to share your thoughts in the comments section below.
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