Increasing rates of adoption of products from across the alternative energy sector have active traders and fundamental investors alike interested in buying into segments such as solar. The strong uptrends on key solar-related assets, many of which got under way in 2017, continue to dominate the price action. As you'll read below, the patterns show little reason for technical traders to bet on a reversal. (For more on this topic, see: Chart Patterns Suggest Solar Stocks Are About to Shine.)
Active traders who look for niche exposure, such as companies within the solar power industry, tend to look to exchange-traded products such as the Invesco Solar ETF. The fund comprises 22 holdings and carries a net expense ratio of 0.70%. Taking a look at the chart, you can see that the fund is trading within a clearly defined uptrend, and the support of the 200-day moving average and the ascending trendline have consistently propped up the price on attempted pullbacks since the start of the uptrend. Active traders would expect these key levels, which are both trading near $24, to continue to act as barriers to a sharp sell-off, and many will likely use them as guides for determining the placement of their buy and stop orders. (For further reading, see: Top 4 Alternative Energy Companies for 2018.)
When active traders look to take a position in a niche industry such as solar, they often focus their efforts on the largest and well-known companies because their share prices offer up the needed volatility and predictability. The top holding of the TAN fund is First Solar, which has a market cap of just over $7 billion. First Solar is the undoubted leader in the solar sector, as demonstrated by the 7.54% weighting in the TAN fund and the strong uptrend shown on the chart below. Notice how the upward trendline has offered traders prime opportunities for placing orders in the past. The predictable behavior near these key levels is expected to continue, and stop-losses will likely be placed below $62.38 in case of a major shift in underlying fundamentals. (For more, see: 3 Bullish Chart Patterns for Solar Stocks.)
Another top holding of the TAN ETF is SolarEdge Technologies, which has been trading along a defined uptrend since the start of 2017. Active traders will continue to look to this trendline for the placement of orders because it has historically proven to be quite reliable. Stop-loss orders will likely be placed below the dotted trendline or the 200-day moving average ($41.02), depending on risk tolerance. (For more on this topic, see: Top 4 Alternative Energy Stocks as of May 2018.)
The Bottom Line
Solar companies and others from across the alternative energy space have been in vogue since 2017, and major trendlines and moving averages have consistently provided strategic entries. Active traders will continue to look to these indicators over the coming weeks because recent price action has brought these levels into play again, offering lucrative risk-to-reward setups. (For more, see: Why You Should Invest In Green Energy Right Now.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.