As the broad markets face increasing levels of volatility due to increased talk of trade war, one segment of the market that has performed relatively well is clean technology. For those who don’t know, businesses in the cleantech space are those that generate a significant portion of their revenue and profit from creating goods and services that reduce consumption of resources while trying to minimize negative impacts on the environment and public health. In the paragraphs below, we'll take a look at three charts and try to determine how active traders will be looking to position themselves over the weeks or months ahead.
Invesco Cleantech ETF (PZD)
Traders looking to gain exposure to niche market segments such as cleantech are often wise to investigate popular exchange-traded products such as the Invesco Cleantech ETF (PZD). Taking a look at the chart below, you'll notice that the price is nearing the combined support of a horizontal trendline and its 200-day moving average (red line). Since these levels were so influential in the past, followers of technical analysis will likely be looking to them again in order to set strategic buy and stop orders.
Based on this pattern, active traders will most likely be looking to add to their long positions at current levels and protect against continued selling pressure by placing a stop-loss order slightly below $41.42. Easing tensions between major trading partners such as the U.S. and China could act as a catalyst for sending shares in this sector back toward the May high of $45.50 and eventually higher.
Johnson Controls International plc (JCI)
For active traders looking to buy into specific cleantech companies, one popular method for finding candidates for a watch list is to analyze the top holdings in funds such as PZD. In the case PZD, Johnson Controls International plc (JCI) has a weighting of 3.16% and is a favorite holding for many long-term value investors, so it is a natural choice for further analysis.
Taking a look at the chart, you'll notice that the 50-day moving average crossed above the 200-day moving average earlier this year, known as the golden crossover, which is a technical signal of a major long-term move higher. It is interesting to note that the $37 level has acted as a psychological level of support and resistance, and it appears as though active traders are using this level to place their buy and stop orders. A buy order near the combined support of the dotted trendline and its 50-day moving average makes sense from a risk/reward perspective. Depending on risk tolerance, most traders will likely look to protect against a sell-off by placing a stop below $37.72 or $34.90.
Woodward, Inc. (WWD)
A relatively under-followed holding of the PZD ETF that could be worth a closer look based on its chart is Woodward, Inc. (WWD). As you can see below, the price has moved higher in a step-like fashion since breaking out of a prolonged period of consolidation earlier this year. This pattern is sought after by followers of trend analysis because the dotted trendlines create clear levels for buy and stop orders.
In this case, followers of technical analysis will likely watch closely over the coming days to see how the price behaves around the nearby support level and whether it is able to break above the resistance level near $115. Stop-loss orders will likely be placed below $105 or $103.19, which is equal to the 50-day moving average.
The Bottom Line
The cleantech sector is often quickly overlooked by many market participants, but recent performance and clearly defined levels of support and resistance are changing the story. Followers of technical analysis will likely want to keep a close eye on the charts of businesses within the cleantech space for the coming weeks or months because the relative outperformance could be geared to continue should the prices move above the noted resistance levels.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.