Electric vehicle (EV) stocks have sat in the fast lane this year, cruising past S&P 500 returns by more than 100% as a push toward more sustainable transport gains traction. What's more, stricter fuel emission standards, expanding tax-based incentives for EV buyers, and the rollout of more vehicle charging stations under a supportive incoming Biden administration should only accelerate support for the group.
According to InsideEVs, October global electric car sales surged 127% from a year ago, their fastest growth in eight years. Furthermore, Swiss investment bank UBS projects EV market share to reach 40% by 2030. Below we take a closer look at two specific exchange-traded funds (ETFs) that track this exciting industry and identify possible entry points using technical analysis.
Global X Autonomous & Electric Vehicles ETF (DRIV)
Launched in April 2018, the Global X Autonomous & Electric Vehicles ETF (DRIV) aims to provide a similar return to the Solactive Autonomous & Electric Vehicles Index – a benchmark comprising global stocks involved in the development, production, or supporting technology of autonomous and EVs. Not surprisingly, Tesla, Inc. (TSLA) commands the top portfolio weighting at 4.32%, with other prominent EV makers NIO Limited (NIO) and Toyota Motor Corporation (TM) also featuring in the top 10 holdings. The fund turns over a decent dollar volume of around $5 million most days on an average 0.27% spread. As of Dec. 21, 2020, DRIV holds net assets of $134.8 million, yields a modest 0.55%, and has gained 57.45% year to date. Over the past month alone, the shares have jumped 11.28%.
Since crashing below $10 per share at the height of the pandemic selloff, DRIV has trended sharply higher. After such a steep advance, active traders may want to wait for a retracement entry to around the $20.30 level, where the price finds a confluence of support from the pre-Nov. 16 gap and 50-day simple moving average (SMA). More conservative traders could look for a deeper pullback to the $18 area, where the fund should encounter support near the September and October swing highs.
A swing high refers to a peak reached by an indicator or a security's price before a decline. A swing high forms when the peak reached is greater than a given number of surrounding highs.
iShares Self-Driving EV and Tech ETF (IDRV)
The iShares Self-Driving EV and Tech ETF (IDRV) seeks to track the performance of the NYSEA FactSet Global Autonomous Driving and Electric Vehicle Index, which is made up of stocks relating to self-driving EVs. Tesla sits in the portfolio driver's seat here also, taking up nearly 10% of the fund's total assets. Interestingly, two tech giants with links to autonomous driving EVs – Apple Inc. (AAPL) and QUALCOMM Incorporated (QCOM) – each receive allocations of around 4%. Trading wise, competitive nickel spreads, coupled with a daily dollar turnover of $2.62 million, allow traders to easily enter and exit positions with minimal slippage. As of Dec. 21, 2020, IDRV controls assets under management (AUM) of $92.2 million, offers a 0.88% dividend yield, and is trading 7.75% higher over the past month. Year to date, the ETF has returned 54%.
Despite IDRV's stellar run, traders should wait for pullback opportunities, given a bearish divergence between the relative strength index (RSI) and price action. Look for an initial entry point around the upward sloping 50-day SMA at $38. Those looking for a more substantial correction should consider entering near $35, where previous resistance looks primed to flip into support. A retracement into this area represents a 17.65% decline from the ETF's all-time high at $42.50 reached in Friday's session.
A bearish divergence occurs when the price of a security is moving higher but a technical indicator is moving lower.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.