Sometimes the next big thing happens right away; sometimes it takes a while to develop.
Believe it or not, lithium-ion batteries were first produced commercially 25 years ago, but they are hot now. And no, I’m not talking about the few exploding batteries that you may be hearing about. I’m talking about simple supply and demand. Goldman Sachs Group Inc (NYSE:GS) predicts the lithium market could triple by 2025.
Lithium batteries are the main power source behind the consumer electronics world we now live in, from smartphones to laptops and just about everything else. The electric vehicle (EV) market is a major driver behind the rising demand, led by the $5 billion gigafactory Tesla Motors Inc (NASDAQ:TSLA) built in Nevada. They’ll need more lithium than they can get their hands on for that. Little-known Faraday Future is also building a $1 billion EV plant in Nevada.
But, while EVs may be grabbing the headlines when it comes to lithium demand, I think the real boom will be from battery storage. As more people strive to become energy independent, lithium-ion batteries can be used to store energy for later, and that will only increase as capacity increases.
You can look to make your money by picking individual stocks, but that can be especially difficult in this area because lithium is only mined commercially in a few countries, most notably Chile and Argentina. (Nevada also happens to have large deposits of lithium.) That’s why Hilary Kramer and I prefer an exchange-traded fund, or ETF, in this instance.
A lot of investors view ETFs as buying an index that they just hold on to. That’s a mistake. ETFs can be great trading vehicles, too, and many are actually even better suited for trading.
The Global X Lithium ETF (NYSEARCA:LIT) invests in the full business cycle of the lithium industry, from mining the metal from the ground to refining it and all the way to battery production. The 25 stocks within this ETF are nearly equally split between the lithium producers and the battery manufacturers. A total of 10 countries are represented; the United States, Australia and Chile account for 57% of the portfolio, making this a true globally-diversified investment vehicle.
LIT has been bouncing around in a range over the last week, as you can see on the chart below. On the one hand, each bout of selling has been met with buyers near support at the $24 area — but, on the other, each rally attempt has failed at the 50-day moving average (the yellow line) over the last month.
Hilary and I made LIT one of our first recommendations in our new ETF Trend Trader service that we just started a couple of months ago. We’re still comfortable buying here, as the story remains intact, the ETF is trading just above support (often a great entry point) and the chart continues to suggest that a move out of this narrow range will occur soon.
We are watching for a couple of key events. First is a close below $24 and confirmation of the pullback, which would be a bearish event that may be a signal to move out of the trade. The second is a confirmed close above $25, and that would be very bullish.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks and ETF Trend Trader where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.
