Advancements in consumer technology in recent years, along with surging demand for clean-energy alternatives has led to increased demand for rechargeable batteries. As a result, prices for commodities such as lithium have benefited from the shift in fundamentals and are trading within clearly identifiable uptrends that don’t appear to be changing direction any time soon. In the article below, we’ll take a look at lithium-related assets and try to identify opportunities for those looking to profit. (For more, see: Lithium: Promising Commodity of the Future).
Global X Lithium ETF
Investing in companies within an emerging industry can be intimidating because the companies can often be relatively unknown and/or illiquid. One popular option is to purchase exchange-traded funds that are designed to track a specific niche. In this case, the Global X Lithium ETF (LIT) has been designed by its managers to track companies from mining and refining through battery production. Taking a look at the chart, you can see the fund has been trading within a strong uptrend since early 2016, and the dotted support line has propped up the price on each attempted selloff. Active traders would expect this behavior to continue and will likely remain bullish until the price moves below the support of either the 50-day or 200-day moving averages. Specifically, many will likely place their stop-loss orders below $26.58 or $24.76 depending on risk tolerance.
Sociedad Química Y Minera de Chile S.A.
As you probably know, South American nations are often strongly positioned in commodities. One nation, in particular, Chile, is a major player when it comes to both lithium and others such as copper. Interestingly, many estimates suggest that a fifth of the world’s supply of lithium is located in Chile. Investors looking to put this knowledge to work will often stumble their way upon one of the largest and most well-known mining companies, Sociedad Química Y Minera de Chile S.A. (SQM). Taking a look at the chart, you can see that the stock is trading within one of the strongest uptrends found anywhere in the public markets. As suggested in the case above, active traders will likely look to ride lithium’s wave of momentum higher and protect against major selloffs by placing stop-losses below either the 50-day or 200-day moving averages. (For more on this topic, check out: New Battery Technology Investment Opportunities).
Betting on rising lithium prices is inherently a gamble on continuing demand for products such as rechargeable batteries. As companies such as Tesla, Inc. (TSLA) focus on affordable versions of self-driving cars, demand for lithium and rechargeable batteries is likely to continue for quite some time. Owning shares of Tesla is a more direct route to profiting from the massive shift that is self-driving cars and based on the chart could be an interesting time to buy. In the chart below, you’ll notice that the 50-day moving average recently crossed above the 200-day moving average. This long-term technical buy signal is known as the golden crossover and is generally used to mark the beginning of a long-term uptrend. (For more, see: Who are Tesla's Main Suppliers?)
The Bottom Line
Lithium is one commodity that has strong demand-side fundamentals that support a significant move higher. There are many different ways for investors to take advantage of the strong uptrend in this commodity. Whether it’s from purchasing a basket of companies with exposure to lithium in the form of an exchange traded fund, buying shares of mining companies with strong exposure to lithium, or purchasing shares in companies making the products that are driving demand. (For more, see: Is Lithium The Next Big Trend?)