Two Short-Term Momentum ETFs (FAN, TAN)

When it comes to investing for the long-term it is imperative that an ETF is part of a bigger trend that can fuel higher prices for years. Swing trading with ETFs will rely less on the big picture and focus more on the technical analysis and momentum.

With the S&P 500 trading at an all-time higher there is no shortage of ETFs that fall into the momentum category. Some have stories behind them that could help propel them to higher prices in the future. While others ETFs are hitting highs, but unfortunately the good times will not last forever. The latter are candidates for swing trading as long as the charts continue to remain bullish.

First Trust Global Wind ETF FAN

Wind energy sounds like a great idea, however it has not become a viable source of energy in the U.S. or around the globe. And depending on whom you ask, it may never replace fossil fuels. Going with the assumption that fossil fuels will continue to be the main source of energy in the decades to come, FAN is merely a momentum play for investors.

FAN recently traded at the best level in over two fears as traders pile into the niche ETF. Since April the ETF has remained above its 50-day moving average the entire time except a three-day breach in June. The chart is one of the best in the business and a recent pullback has FAN once again trading near support at its moving average. The 5 percent pullback from the high to support is created a buying opportunity for traders looking to ride the momentum of the basket of global wind stocks.

Guggenheim Solar ETF TAN

TAN is in a similar predicament as FAN, whereas the chart is great, but the long-term outlook for solar energy may not be happening soon enough. Again, it would be great if the sun could power everything on earth, but unfortunately it is only a small portion of the energy that is needed.

The chart for TAN shows an ETF that pulled back last month to its 50-day moving average before rallying to a new multi-year high. Currently the ETF is within one percent of breaking out to a new high once again. With a gain of 162 percent this year alone, there is a case that the solar stocks have rallied too much and are due for a sizable correction. It is true, the sector will pullback at some point, but the charts show no indication of the ETF slowing down.

When it comes to playing momentum ETFs for a swing trade there are two important factors that lend to success. First, buying on a pullback and near support will lower the risk and offer a lower entry price. Second, using a stop-loss order is extremely important because if support is broken it will often suggest that the momentum trade is over.