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Mish's midweek update: when do we get serious about alternative energy?

Mish's midweek update: MarketGauge's Mish Schneider offers her expert analysis of US markets.

I feel a sense of déjà vu writing about alternative energy, as I remember covering the topic in my 2019 book, Plant Your Money Tree: A Guide to Growing Your Wealth. 

Since then, however, gas prices have risen to an all-time peak, while alt-energy stock prices have languished. 

Electric vehicles attracting interest, but shortages persist

People in the US bought more than 204,000 electric cars and trucks in the first four months of this year, up 60% from the year before, and Google searches for electric vehicles (EVs) are at an all-time high. Yet EVs still make up less than 1% of the vehicles on the road. 

Low uptake hasn’t been helped by supply chain problems – most notably a shortage of semiconductor chips since early 2021 – which have forced automakers to idle plants, resulting in shortages of various vehicles, including EVs.  

Some EVs – such as the Ford F-150 Lightning, GMC Hummer EV, Rivian R1T and Lucid Air – have long order backlogs. Even Tesla, whose share price performance is shown in the chart below, said that orders for some models won’t be fulfilled until summer 2023. Meanwhile, certain models produced by General Motors, Ford, Hyundai and Kia are available only sporadically .

The Tesla chart above suggests that the shares could decline further, even though the stock has rallied from recent lows. 

Renewable energy becoming cheaper

Having discussed EVs, let’s move onto renewable energy. Prices for solar and wind energy have decreased substantially in recent years due to the scale of new projects. The introduction of large solar parks and giant wind turbines has helped to reduce long-term costs substantially.

Although supply chain disruptions have caused a slowdown in green energy developments and pushed up costs, the hope is that these cost increases are temporary.

The below chart, which displays price action for TAN, the Invesco Solar ETF, is show signs of life. 

Not only is the ETF outperforming the S&P 500, as highlighted by MarketGauge’s Leadership indicator, it is also gaining momentum, clearing the 200-day moving average, as illustrated by MarketGauge’s Real Motion indicator.

Furthermore, the price has cleared the 50-day moving average after an interesting V-bottom pattern in May. 

In contrast, although PBW, the Invesco WilderHill Clean Energy ETF, is also outperforming the S&P 500, it has yet to gain any real momentum and is under its 50-day moving average. This ETF can be seen in the below chart, alongside FAN, a First Trust ISE Global Wind Energy Index Fund. 

FAN initially led, as far as momentum and performance relative to the S&P 500 are concerned. In price, it sits above its 50-day moving average, perhaps in a state of consolidation.

Looking at these charts, one could draw the conclusion that solar energy might have more upside than wind. Wind energy could gain traction, while clean energy –  a combination of both solar and wind power – has more work to do, but it too is moving in the right direction.

Growth potential for solar and wind could rest on China’s ambition to reduce its reliance on fossil fuels. China leads the world in wind and solar power capacity, and its government has stepped up support and guidance to the renewable energy sector in terms of policies and finance. Putting the US to shame, in 2021 China generated three times as much electricity from renewable energy sources as the US, based on official data.

US solar stocks to watch

First Solar [FSLR], a US company focused on renewable energy, appears somewhat stuck, with politicians talking up the current need for fossil fuels and the two main parties divided over the case for renewables. Nevertheless, FSLR could still have its day in the sun.

As for Canadian Solar [CSIQ], one more push over the current 200-day moving average (the green line in the below chart) could position that stock as a possible countertrend in the making, regardless of where the US stock market goes next.

Although the overall US stock market might be in for more pressure given rising yields, alternative energy remains of potential interest to investors looking to buy the dip. 

Mish Schneider is MarketGauge’s director of trading education and research. Read more of her market analysis here, or visit marketgauge.com.

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