PowerShares WilderHill Clean Energy Portfolio (PBW)

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MONDAY, JANUARY 5, 2009
GETTING TECHNICAL



Energy Stocks Get Energetic
By MICHAEL KAHN | MORE ARTICLES BY AUTHOR
Oil, coal and even solar power ETFs are attracting buyers again after a brutal bear market.
WITH THE PRICE OF CRUDE oil cascading down from $147 to $35 per barrel in just five months last year, many had given up on this commodity. Their argument stems from the global economic slowdown and the attendant "demand destruction" has been thrown around quite liberally.
The market's emotional pendulum swung too far to the greed side early last year and then too far to the fear side in the final quarter. Even if we never see those peak prices again, energy markets are technically oversold and ripe for a rally. That means we can look forward to a reversion to a mean price that is higher than what we see today.
The same is true for stocks of energy companies and one look at the Sector Select SPDR energy ETF (XLE) bears this out (see Chart 1).
Chart 1

From a peak over $91 a share in May 2008 to a low of $39 in October, this ETF clearly had a rough few months. It settled into a trading range after the decline, in which it still resides today. But unlike the broad market, it did not set a lower low in November. In other words, the bears attacked other parts of the market and left energy alone, relatively speaking.
Chart watchers consider this positive performance relative to the market a harbinger of better things to come for the sector. Indeed, the ETF was up Monday as the market was down. At $51 a share, the ETF is now knocking on the ceiling of its trading range.
Further, money continued to flow into the ETF over the past few months as evidenced by on-balance volume analysis. This indicator keeps a running tab of volume traded on days when prices rise -- supposedly thanks to increased demand -- less volume on days when prices fall -- supposedly on increased supply. When on-balance volume rises we can surmise that demand is beating supply and that bodes well for an eventual upside breakout from the trading range.
When oil-based energy faltered last year, so, too, did the incentive to move to other sources. Witness similar price collapses in natural gas, uranium for nuclear power, coal and their related stocks.
The Market Vectors-Coal ETF (KOL) sports a different chart than that of the SPDR energy ETF but it shows several reasons to believe that it has already seen its worst levels (see Chart 2).
Chart 2

While it did set its lowest level in November, it has been in a rising trend ever since. And during last week's low volume trading for the market as a whole, the coal ETF saw rising prices on volume that was above its own 50-day average. http://investorshub.advfn.com/boards/board.aspx?board_id=11590
Solid price action on solid volume is a technical positive. So is a 73% gain over that period vs. a 26% gain for the Standard & Poor's 500. This may not be a true bull market but for those looking to play what I expect to be a multi-week advance already in progress, this ETF does seem to be a good choice.
In the alternative energy arena, the Claymore/Mac Global Solar Energy ETF (TAN) was one of the brightest lights in the market last week. After falling more than 80% from its peak in 2008, the solar ETF is up 70% from its November nadir (see Chart 3).
Chart 3

To be sure, despite the mathematical trickery, this remains one beaten down sector. But the facts of money flowing back into the sector, a rising trend from November, a move above the key 50-day moving average and nice gains Monday when the rest of the market was weak tell us that investors are coming back.
For those looking for a bit more diversity in the alternative energy area, the Powershares Wilder Hill Clean Energy ETF (PBW) has a similar chart to that of the solar ETF (see Chart 4). The clean energy ETF covers solar, wind, and other "green" energy companies and also sports such positive technical features as a move above its 50-day average, rising trend and rising on-balance volume. http://investorshub.advfn.com/boards/board.aspx?board_id=8307
Chart 4

The bottom line is that the energy market, whether conventional or alternative, is set up nicely to lead stocks higher. Again, I must stress that this is no buy-and-hold bull market but for those looking for a short-term trade of just a few weeks, the opportunity in energy stocks and ETFs seems very good.