Every now and then I scan various Exchange Traded Fund (ETF) options to find out what is working to determine if new trends are emerging. During this scanning process I recently came across a very interesting industry that looked quite promising to me. It has been wise for investment professionals to ignore this industry over the past six years, but this year could be different. Fair warning: Before I proceed, you need to leave your opinion at the door.
To the right is the price chart and daily RSI (14) going back to the start of the bull market in 2009. The first thing that jumps out to me is huge relative under-performance, as this position lost 20% while the S&P 500 dividend adjusted gained 140%. But positive developments started to appear last year between RSI and price. For over a year and half, a positive divergence has built as price continued to make new lows but the RSI failed to make a new low. Also, using the red arrow on the far right of the chart, the 50 day moving average is about to cross above the 200 day moving average for the first time since early 2011.
I ran a weekly chart as well (right). It confirmed my interest as a bullish divergence was also present here, and there was a nice trend break (and a new high) on the weekly RSI.
Finally, bringing price a bit more in focus, I ran a chart back to December 2011 (below). We have had a small break above the resistance trend holding all price appreciation. This is a good sign, although a break above the red resistance line at $4.55 will make me much more bullish on this position as a new high is established.
From a technical perspective, this position has a lot of positive attributes and potential, and you might be inclined to buy it. But would you still be interested if I told you the position was the Powershares Wilderhill Clean Energy ETF? Sentiment couldn’t be more pessimistic regarding these ETF/stock positions right now, and maybe deservedly so.
But maybe it’s time to be a contrarian.
Copyright: hjalmeida / 123RF Stock Photo
