Editor’s note: This column is part of our Best Stocks for 2018 contest. John Jagerson’s and Wade Hansen’s pick for the contest is the Market Vectors Rare Earth Strat Met ETF (NYSEARCA:REMX).

Oftentimes when traders start looking for trades for the new year, they try to make predictions about what the next hot new trend might be. We, on the other hand, prefer to focus on the trends that are already starting to establish themselves and don’t appear to have any significant headwinds in front of them.

Two trends that have caught our eye are 1) the bullish shift in demand for and production of electric car batteries, and 2) the general increase in stock valuations.

With those two trends in mind, we expect the Vaneck Vectors Rare Earth Strategic Metals ETF (NYSEARCA:REMX) to be one of the top-performing funds in 2018.

REMX is uniquely situated to take advantage of both trends because it focuses on the stocks of the companies that produce the materials — primarily lithium — that are used to make the batteries that power electric cars. These stocks should see their value increase as 1) the price of lithium and other rare earth strategic metals increases as demand for these elements soars and 2) as traders continue to push the price multiples they are willing to pay for these commodity-producing companies even higher.

If you look at the top 10 holdings in REMX, you will see a number of different companies from around the globe, but the predominant weighting of the fund tilts toward lithium-producing companies from Australia and Canada (see Table 1).

Table 1 — Top 10 Holdings of REMX as of 12/15/2017 (source Vaneck)

This focus on lithium-producing companies within REMX will enable us to benefit from the increased demand for electric cars — and their batteries — while also providing a little diversification and avoiding the extreme volatility that can come from investing in the stocks of electric-car producers, like Tesla Inc (NASDAQ:TSLA).

Increased Demand for Electric Vehicles

According to a forecast from JPMorgan Chase, automotive demand for lithium is expected to grow by 35% each year through 2021.

We see two fundamental factors driving this increase in demand: government-imposed quotas and rising gasoline prices.

Governments around the world are issuing quotas for energy-efficient cars. The French and British governments are working toward phasing out the sale of new diesel and gasoline cars by 2040, the Chinese government is requiring car companies ensure at least 10% of the cars they sell in 2019 be pure-electric, plug-in hybrid or fuel-cell cars and the Indian government has a goal to sell only electric cars by 2030.

While government quotas will certainly go a long way toward pushing automakers to ramp up their electric and hybrid car production, we believe increasing demand from consumers who don’t want to get caught paying for gasoline as prices move steadily higher will really tip the scales.

Crude oil and gasoline prices hit their multiyear lows in early-2016 and have been rising ever since. This year, with an OPEC production cap in place (a cap that was recently extended until the end of 2018) and a thriving global economy, crude oil and gasoline prices have hit levels not seen since 2015. We expect that trend to continue next year. As gasoline prices rise, we expect more and more drivers to make the switch to battery-powered vehicles.

Conclusion on the REMX ETF

At about the same time crude oil and gasoline prices hit their lows in early 2016, other commodity prices and the stocks within REMX hit their lows (see Fig. 1).

Fig. 1 — Longer-term Daily Chart of Vaneck Vectors Rare Earth Strategic Metals ETF (REMX)

Since that time, as commodity prices have rebounded and demand for battery-powered vehicles has picked up, REMX has climbed by more than 150%, confirming the end of the multiyear downtrend the fund was in.

We expect this rebound to continue during 2018.

Fig. 2 — Shorter-term Daily Chart of Vaneck Vectors Rare Earth Strategic Metals ETF (REMX)

The fund is currently sitting at the same resistance level it hit on the way down in 2015, but we expect it to break higher and move up to the resistance level that was established in the first half of 2014 (see Fig. 2) during 2018.

You can learn more about identifying price patterns and using them to project how far you think a stock is going to move in our Advanced Technical Analysis Program.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade with our $19 for 2 months Holiday Savings Special by clicking here. As of this writing, they did not own shares of REMX.