Sunday, February 13, 2011

Clean Energy - Last Year's Trade?

Update: Feb 27, 2011

My original post was written Feb 13, 2011, shortly after Congress proposed deep cuts to clean energy funding.

At the time of writing, there were no near term catalysts that were expected to give clean energy any type of  boost. However shortly after writing the article Libya blew up and WTI oil prices subsequently spiked. Triple-digit oil prices suddenly make alternative energy plays like CLNE or WPRT much more attractive.

Those who follow me on Twitter were notified when I covered my shorts in WPRT and CLNE. On Feb 17 I covered my WPRT short @ 15.81 for a 8 cent loss and on feb 18 I covered my CLNE short @ 11.96 for a 12 cent profit. Within days both of these stocks screamed higher along with global energy prices.

Chart: WPRT

Chart: CLNE

I was fortunate enough to cover my short positions in each of these stocks, which saved me from substantial losses.

This highlights 2 important lessons:
  1. Never become married to a position or a trading strategy.
  2. When the fundamentals or the technicals change - get out of the position.
The unfortunate thing for me is that I recommended both of these stocks as potential longs in my first blog post on feb 1 when the Egypt turmoil first began. But obviously I was a little early on that one...


Original Post: Feb 13, 2011

Congress last week proposed budget cuts of $900 million in clean energy funding. Obama had been budgeting $2.36 billion for energy and efficiency and renewable energy programs for fiscal 2011. The proposed cuts would chop almost 40% out of the budget for clean energy - which could have a devastating effect on clean energy related companies and their stocks.

What sectors could be affected?
  • Solar
    • Major solar names like FSLR, SPWRA and JASO have been very strong recently. While they could be affected, and could be due for a pullback, I have difficulty shorting stocks with such strong chart patterns.
    • FSLR's chart, for example, looks fantastic (see below). If I wasn't bearish on the fundamentals I would be all over this as a long trade.

  • Wind
    • I am not too familiar with individual wind companies specifically. A wind ETF like FAN or PWND could be affected, although as Tom Lydon at Seeking Alpha points out PWND has high levels of exposure to developed Europe and Asia, so some of these ETFs may not provide the best bang-for-the-buck as a short trade vs. other strategies.
  • Alternative Fuels
    • Names like CLNE and WPRT immediately jump to mind here. The charts on each of these companies look absolutely brutal right now. I am short both of these names as each of them have recently broken out out multi-year uptrends.
    • The biggest risk to shorting these companies would be a sudden (and at this stage unexpected) sign that Obama is warming to the idea of passing the Natural Gas Act to provide incentives to natural gas fueled cars and trucks. Longs in these stocks waited for all of 2010 and got nothing. At this stage there are no signs that 2011 will be any different than 2010, especially if the tendency is toward cutting budgets for clean energy initiatives.

WPRT has just broken out of a 2-year long uptrend that started at a low of 3.01 in March 2009. The breakout of the trendline also coincided with a break of its 200 day moving average. As well all major moving averages have recently started to turn lower. Although the drop to date since breaking the 200 day moving average @ 17.94 has been severe, all technicals still point to much lower prices. The stock is currently trading at 15.10. My initial target is 12. Above 16.50 I would have to reassess the trade.


CLNE has just broken out of a descending triangle that had been forming for much of 2010 and early 2011. The stock closed at 12.17 on Friday. The measured move of the break of the descending triangle actually targets 3.26, which is just 3 cents above the stocks Nov 2008 low of 3.23. From a trading perspective, however, I am looking for a initial move to 10-11. Above 12.75 and I would need to reconsider, but it would take a move above 13.50 to reverse the bearish chart.

Obviously the companies mentioned above that have the greatest percentage of revenues derived from the US would have the most to lose under the proposed cutbacks.

But cutbacks on clean energy initiatives are not just being felt in North America. Just last month the Australian government announced it would be cutting A$500 million in funding for solar power and carbon capture and storage projects. The government also announced it would be cutting A$2.8 billion on climate control measures including the Green Car Innovation Fund and the Cleaner Car Rebate Scheme according to Bloomberg.

Blame for the Australian cuts is primarily being placed on the massive floods in Queensland which are estimated to have caused $20 billion in damages. But while the reason for the cuts differ, it goes to point out that clean energy initiates are one of the first at risk whenever a government faces a financial deficit.

I would be interested in hearing about other companies not mentioned that would potentially be impacted by cutbacks in clean energy spending if anyone has further ideas...

No comments:

Post a Comment