Yesterday we made our first foray into the vast wilderness of energy as we broadly examined
the various sectors that comprise that space. Today we turn our attention to some individual issues that technically exhibit the greatest promise.
Let's start with the alternative energy sector, which is comprised of a widely disperse set of technologies, all of which are alternatives to petroleum-based energy sources. Additionally, we add to this group a set of stocks that are not alternatives, but instead energy-efficiency firms -- companies providing a means to accomplish more with less energy consumption.
The alt-energy sector includes many companies of interest -- in fact, there are just too many ideas for one portfolio. As a result, the focus today is on the strongest of all the alt-energy sectors: the best of the energy-efficiency firms. (Note that the chart ordering is not meant to suggest one chart being favored more than the other.)
We start with a micro-cap holding company,
. Acorn has taken an interest in a number of green companies, including those that offer products for energy efficiency (electric grid) and pollution reduction (coal-powered plants). I'm not overly impressed with its most recent income statement, but the chart is stellar.
Starting with the long term time frame, notice how the trend is
confirmed. When I say confirmed, I choose my words carefully; confirmation occurs when a stock breaks a previous swing point and volume expands simultaneously. This is true of a break higher or lower in price. ACFN has consistently shown confirmation as it has moved higher. This is also true of the long-term as well as the intermediate-term time frame, as shown below.
To gain entry into ACFN, you need to piecemeal into the stock. For example, buying a little around $7 is a good first entry point, and buying again in the $6-to-$6.50 range if prices allow. The same would be true if it were to make it back to the lower support zone, assuming volume does not expand on the way back down -- and that is a key point. The market constantly releases information to the trader. In my work, that information is released at the swing points. The buy zones you see are anchored by swing points. It is at those levels that the market talks.
Next up is
, a mid-cap German company that makes equipment used to make LEDs that has seen a tremendous growth in sales. Since March, shares have jumped from $5 to a high of $38.34. One caveat is that the company has benefited greatly from the strengthening euro, so this stock is partly a currency trade as well.
The long-term chart shows that AIXG is in a confirmed uptrend. Volume expanded as the swing highs were blown away and has continued to surge as prices have done likewise.
Looking at the intermediate term, we can see the makings of a possible pullback setting up.
Notice the high-volume spike in November. That high of $38 will most likely prove difficult to top in the near term. Assuming it does retrace, the two large buy zones identified on the chart are where you should look to make some purchases. When you are attempting to edge into a stock that has moved markedly higher (as AIXG has), you have no choice but to scale into the trade. To do otherwise will lead to observation rather than participation.
is another player in the energy-efficiency sector and is the market leader for lower-energy light-emitting diodes that replace inefficient incandescent light bulbs. One look at the chart and you become witness to the glow of the company's success. Cree is currently mid-cap in size yet is rapidly growing. On the long-term chart, you have to pull it all the way back to 2004 to find the last long-term swing high. The stock broke through the previous highs at $42.44 as volume expanded slightly. This fact illuminates another key concept: It is not necessary for volume to expand greatly to confirm a trend. Naturally the trend is made stronger if volume swells, but it isn't required.
When you pull the time frame in tighter to look at just the intermediate-term action, you'll see that the "back-up-the-truck area" is in the $40-to-$42.50 area. Notice how it just so happens to line up with the long-term breakout area from above? When you get multiple points of technical congruence, it adds to your confidence in the trade.
Switching back to a large-cap company,
operates in building efficiency, automotive experience and power solution businesses worldwide. The charts on this behemoth are particularly strong, with huge volume expansion and two well-defined buy zones that offer a great risk-to-reward trade in the long term.
You can see this even more clearly in the intermediate-term chart.
We finish the energy-efficiency names by examining
, a mid-cap provider of specialty chemicals and performance materials worldwide that has a footprint in alternative energy efficiency, solar and fuel cell alt-energy sectors. On the long-term time frame, the support and resistance zones are clearly visible:
The intermediate-term time frame, though, shows that the downside on this stock appears to be reasonably limited. It is building a nice floor at this higher level, and that floor is anchored with nice volume spikes. That's what you want to see if you are buying at elevated levels -- a good indication that prices are unlikely to come right back at you once you take a position.
Finally, here are a couple of names that I examined on
. That analysis still stands; because it includes in-depth examination, I'll simply point you to that work.
The first is a more speculative small-cap play,
( COMV), which focuses in the smart grid space. The charts for this stock are
The other is
, which offers a particularly interesting and
hugely profitable risk-to-reward trade at slightly lower prices.
It is evident from this quick foray into the energy space that there are many strong companies to pick from. The charts led us today to the energy-efficiency space. Tomorrow we will look at some pure alternative-energy names. Most of them are more speculative, but speculation is not necessarily bad as long as you understand the risks; it is with risk that you can find reward. In a rapidly changing environment like alternative energy, the risk is magnified, making it all the more important that we find a strong technical basis to support the fundamental views that we hold.
So until next time, keep trading the charts!
By L.A. Little of tatoday.com, author of
At the time of publication, Little was long ACFN, AIXG, CREE, JCI, CBT and COMV, but positions can change at any time.
L.A. Little is an author, professional trader and money manager who writes daily on
, a free educational site for traders and investors. He has been featured in Stocks & Commodities magazine and is the author of