The article below was written for the 7th edition of the Energy Insights Newsletter- EnSights. The newsletter is circulated to select employees in Royal Dutch Shell- where I work as an Economic Advisor- in order to share my technically driven insights on the global energy industry.
The energy paradigm continues to change every single day. Keeping an eye on the energy sources of the past, present and future is ever more important to timely spot opportunities and make sound investment decisions. In this article, we start with a look at crude oil – to gauge where it might be headed, followed by the technical analysis of a few clean energy companies.
Crude Oil update
In the previous article, we discussed the grim future of crude oil while it was surfing at the level $42- $43.80 in August. Post that article, crude glided lower and found support $36 in September. While this 18% decline was swift (over 5 trading days), crude has since then been oscillating in a broadening triangle pattern as shown on the chart. The bound lines are noticeably diverging from each other with $42 posing a clear resistance to price. A look at the momentum indicator, RSI, indicates that weakness in crude oil price will continue as RSI remains shy of 60 (the bearish resistance zone on RSI). From this point onwards, we expect a decline in crude oil prices and approach support at $34.50. The current market price of crude is $41.31, price resistance is at $42 and the support is at $34.50.
Next, we cover the analysis of the clean energy companies covered in the article above.
Nextera Energy Inc. –
This stock recently split 1 to 4 effective from 26th October’ 2020, helping improve liquidity. Even though clean energy continues to hold the centre stage in business discussions, the stock price of NEE is not showing promising signals in the near term. Please refer to the above chart- The stock continues to oscillate in the ascending channel for now, but weakness in price momentum is evident by its failure in touching the resistance trendline (red) after rallies and breaching the support trend line (green) on one occasion during a correction (circled). The Relative Strength Index (RSI) is showing negative divergence – meaning the RSI is moving lower whereas the stock price is moving higher (yellow lines). If the stock price ends below the level of $74 on any day, that would substantiate this observation of suspected weakness to ensue in the prices and indicate temporary correction.
Brookfield Property Partners LP
The clean energy theme has buoyed stock prices of sector leaders in the renewable energy space and BPP is no exception. Like NEE, it has been moving upward – bounded by a channel- and posted 60% return YTD amidst COVID-19 pandemic. As we can see in the adjoining chart, there are two indications of price weakness in the near term. 1- the stock recently touched the resistance trendline (red arrow); 2- the negative divergence between price and RSI. The slowing momentum over the past few days is strong evidence to believe that prices might reverse for a correction soon to meet the support trendline at $12. The current market price is $16. Price is yet to confirm this theory and a move below $14.9 is the confirmation we seek.
First Solar Inc.
The largest clean energy player in the US, FSI posted YTD returns of 40% till date, This is an under-delivery compared to the potential this stock holds. Referring to the above chart, the good news is that the stock price has given a breakout from a 7-year-old trendline on 12th Oct (blue circle). Currently a pullback, from the resistance trendline is unfolding towards the two support trendlines waiting at $69.45, after which the stock is expected to continue its journey upwards of $100.
SolarEdge Technologies Inc.
SEDG is a stock with strong trending tendencies. The YTD return itself is 118%, but if you looked closely it has rallied 350% from the low of March ’20 of $70 to the recent high of $315 in just 7 months. Looking at the daily chart we can see the stock has been correcting recently and is headed for the support level at $208 (35% correction from $315). Coincidently, the level of $208 happens to be a cluster of supports re-enforcing its strength. If $208 is breached, then the next support would be $180. However, the charts do not feel like they might need the support as the momentum indicator is signaling strength and resilience in the stock price which means that an upside rally may soon be witnessed after a little more correction.
Enphase Energy Inc.
ENPH has posted a perpendicular upside move since June 2017, clocking in a mindboggling 15,788% gain for investors who got in at the right time. Having noted that, the rally is far from over as of now. A quick look at the recent price data on the daily chart reveals that this stock has a long way to go before it truly rests. However, the momentum indicator – RSI, suggests that it may be time for a minor correction in the stock price indicated by negative divergence. A short-term correction is expected from the current price level of $120 to $96. On the face of it, that is a 25% correction, which may be a lot for other stocks, but is a mere nail trim for Enphase Energy.
After going through the few stocks covered above, the growth trajectory of the clean energy sector stands out vividly. The sector might experience a mild correction in the near term, but the long-term prospects continue to be attractive and promising.
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