These could be the best ETFs to trade in December

As the markets gear up for the final four weeks of 2016, several exchange-traded funds may be much more attractive than others.

Craig Johnson, senior technical research analyst at Piper Jaffray, looks to the charts and recommends buying one ETF that's soared — and selling one that's plummeted.

Johnson is bullish on energy stocks at these levels, and said his top ETF pick would be the Energy Select Sector ETF (XLE), which rose over 8 percent in November.

The XLE jumped 5 percent Wednesday after the Organization of the Petroleum Exporting Countries agreed to cut oil production by about 4.5 percent, the first deal of its kind reached in eight years.

"If you take a look at the XLE, you'll see that this is an index that has started to break out, starting to trend higher," Johnson said Wednesday on CNBC's "Trading Nation," projecting 7 percent of upside for the ETF.

On the other hand, as high-yielding utilities have fallen this month amid the bond-yield rise, Johnson recommends selling the Utilities Select Sector ETF (XLU) and buying energy in its place.

The XLU, for which Johnson sees another 6 to 8 percent downside, has lagged the market by about 7 percent this month.

In other words, Johnson recommends adding exposure to the best-performing S&P 500 sector, and cutting exposure to the worst performer.

"We think there is going to be a continual pressure to buy offense and kind of pro-cyclical type names, and there is going to be a waning of money coming out of these utilities as that bond proxy trade is really coming off, from our perspective," he said.

If investors are looking across the border, the beaten-up iShares MSCI Mexico Capped ETF (EWW) is one trade at these levels, according to Zachary Karabell, head of global strategy at Envestnet.

The risk in owning the EWW looks attractive to Karabell as it's gotten crushed in November, falling 14 percent on investors' uncertainty about U.S.-Mexico trade and the plummeting Mexican peso.

Top holdings in the ETF include the Mexican telecommunications giant America Movil and multinational beverage company Fomento Economico Mexicano. The two names alone comprise 20 percent of the ETF's holdings.

Far too much pessimism is priced into Mexican equities at these levels, Larry McDonald, editor of The Bear Traps Report newsletter wrote in a recent note. He does not see the Trump administration enacting immigration reform next year, therefore limiting further downside to Mexican companies, and sees big opportunity in the space.

"The risk-reward in owning Mexican equities is compelling at these levels," McDonald wrote, calling the EWW a "screaming buy."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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