The conservation and purification of water used in homes, businesses, and industries is an investment theme that will continue grow in importance for decades to come. The underlying demand for such products is a key component that many long-term traders look for when identifying candidates for their portfolios. In this article, we will look at three charts that are used by many active traders to gain exposure to water stocks and consider how they will likely position themselves over the weeks and months ahead.

Key Takeaways

  • Strong underlying demand for clean water is driving prices across this niche subsector higher.
  • Nearby support and resistance levels are providing clear guides for where active traders will look to place their buy and stop orders over the weeks ahead.

Invesco Global Water ETF (PIO)

When active traders want to gain exposure to niche market segments, such as the conservation and purification of water used across the globe, the answer for many is to turn to exchange-traded products such as the Invesco Global Water ETF (PIO). Fundamentally, the fund comprises 53 holdings from across the globe that are working hard every day to make access to clean water possible.

As you can see from the chart below, the recent retracement from the swing high of $33.28 has sent the price toward an influential level of support as noted by the horizontal trendline. The nearby support will likely be looked to by active traders as a guide for determining the placement of buy and stop orders. More specifically, buy orders may likely be placed as close to the dotted trendline as possible, while stop-loss orders will likely be placed nearby, or below the support of the 200-day moving average, which is currently trading near $29.32.

Chart showing the share price performance of the Invesco Global Water ETF (PIO)
StockCharts.com

Pentair plc (PNR)

As one of the top holdings of the PIO ETF, many active traders interested in the water solutions subsector may want to take a closer look at Pentair plc (PNR). Looking at the chart below, you can see that the stock has been trading within a clearly defined uptrend since the 50-day moving average crossed above the 200-day moving average back in July.

Each retest of the combined support shown by the dotted trendline and the 50-day moving average is a technical sign that the bulls are in control of the momentum. Based on the pattern, bullish traders will most likely want to buy as close to current levels as possible and then protect against a selloff by placing stop-loss orders below $47 or $40, depending on risk tolerance and outlook.

Chart showing the share price performance of Pentair plc (PNR)
StockCharts.com

Recent years have seen an upswing in the demand for investments that seek to profit from the need for fresh, clean water. If the trend continues – and by all indications, it will – investors can expect to see a host of new investments that provide exposure to this precious commodity and to the firms that deliver it to the marketplace.

American Water Works Company, Inc. (AWK)

Another top holding of the PIO ETF that could capture the attention of traders over the weeks ahead is American Water Works Company, Inc. (AWK). Looking at the chart below, you will notice that the long-term moving averages and dotted trendlines have provided clear signals to traders on where to place orders.

The lucrative risk/reward setup at the moment suggests that the recent sign of strength could be an early indication of a prolonged move higher. From a risk-management perspective, stop-loss orders will most likely be placed below $140.36 or 134.27, depending on outlook and risk tolerance.

Chart showing the share price performance of American Water Works Company, Inc. (AWK)
StockCharts.com

The Bottom Line

The inherent demand for clean water provides a strong basis for investing in companies that specialize in conversation and purification. Based on the chart patterns discussed above, it appears as though lucrative risk/reward setups on charts from across the sector could be presenting traders with an ideal buying opportunity.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.