Clean Energy is Signaling Trouble for Stocks

There’s a pattern that the market follows, and it goes like this…

A market rally is sparked, like we saw in November. The first stocks to take off are the “fan favorites” as everyone looks to buy these stocks on the cheap. This time around, we all know that those were the Magnificent Seven.

Next, we see the more mainstream stocks start to participate; banks, consumer, and industrial sectors take off.

Next, we get the commodities like oil, metals, and basic materials.

Finally, the misfits get invited to the rally. These are the stocks that people really don’t want to buy, but they’re still cheap so what the heck, hold your nose and make a little money.

In this scenario, that’s the clean energy companies represented by the iShares Global Clear Energy ETF (ICLN).

Year to date, the ICLN shares have lost 12%. We saw a small burst of buying a few weeks ago that resulted in a 10% rally, but the shares quickly lost that last week and are now balancing on a critical technical level, $13.50.

From a technical perspective, it’s hard to find a reason “why” that price is acting as support, except for one that traces back to the 13th Century.

I’m referring to the Fibonacci Retracement, developed by mathematician Leonardo Bonacci or “Leonardo of Pisa.”

We don’t have time to go into the details, they’re vast. But here’s the short story.

Fibonacci Retracements follow a mathematical pattern that is found “in nature,” including the patterns of stocks.

$13.50 is just below the 61.8% retracement from the November lows to the December highs in 2023.

Just know that the retracement is important enough that technical analysts and quantitative models will trigger their buying or selling on the price’s success or failure to act as support. That’s where the problem starts.

The ICLN shares just saw the trend of their 50-day moving turn bearish. This means that the shares are likely to see increased selling pressure daily, putting that $13.50 at risk of breaking.

icln stock chart

(Click to enlarge)

Bottom Line

A break below that critical $13.50 will trigger even more selling pressure, pushing ICLN shares towards their $10 price.

Let’s face it: clean energy is being left on the roadside as consumers are growing tired of spending policies subsidizing clean energy initiatives that haven’t produced meaningful results.

The political environment has just turned on the sector for now, which is the only reason that it had garnered any attention from investors.

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About the Author

Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.

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