Chart of the Week - Renewable Energy
Renewable energy equities - major long-term technical pattern progressing...
Everywhere I see triangles…
Across some of the major macro markets (e.g. oil, USD, treasuries) we’ve seen some key triangle patterns playing out (compression trades — moments of indecision where the market is notching up lower highs and higher lows; often resolving with explosive breakouts).
But most of those have been shorter-term, still important, but still on the small side. And to be fair, if you get a relatively small and short-term technical pattern playing out at a key moment it can still mark a major turning point.
But technicians can agree on one thing (and they usually don’t!) — the bigger and longer-term the pattern, the more meaningful it is …and the more significant the subsequent moves are likely to be in terms of duration and magnitude.
This brings us to the chart below…
Global renewable energy sector equities have found a higher floor following the bursting of the Biden Bubble (there was a surge of enthusiasm on renewable energy stocks back in 2020/21 thanks to the promise of pro-clean energy policies + pandemic stimulus).
The bursting of the bubble saw a series of lower highs as optimism gave way to skepticism and then outright pessimism.
And now? It’s a battle between bulls who see the reset in valuations to cheaper levels and better entry price, the major strides China is making with clean energy, and the longer-term theme of the energy transition and energy demand growth… vs the bears who see ESG fatigue, doubts and mixed messages on clean energy —along with growing storm clouds on the macro/market outlook.
And who will win this battle? If I had to guess I would say the green line is going to win out in the end, renewable energy and the socio-political trends underpinning the energy transition are no flash in the pan — meanwhile, energy demand is only going to increase; probably exponentially in years to come, and renewables are going to need to be a part of meeting that demand.
In the immediate term though, realists will see that red line and be waiting and ready to pounce should global renewable energy stocks breakout… because if there’s one thing that sticks out on that chart it’s the procession of bubbles.
Financial media often talks of bubbles as a source of fear and gloom, but you know what? Learn to stop worrying and love the bubble. Have a strategy and study the cycle to be a victor not a victim of bubbles and cycles.
Key point: Global renewable energy stocks are approaching a major breakout.
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