I have been bullish on oil since USO apeared to bottom a few weeks ago. That hasn't changed and in fact many oil stocks have clearly bottomed and are moving up quite well. As you would expect, alternative enrgy stocks have mirrored this move to some degree but most of those stocks corrected very harshly after huge gains early this year. There is so much technical damage that ethanol stocks, for example, still trade below their 200 dma and some like ADM even trade below their 50 dma's. I think that this underperformance has provided a great opportunity in that sector especially in light of the democrat's return to power in the house and senate. While we shouldn't necissarily expect legislation to change dramatically we can expect the buzz around alternative energy to grow as the lawmakers hold hearings and complain on tv. I thought these top ten predictions on the impact of the elections were intertesting and probably correct. The first being that energy will go back up. For a great screen of ethanol, solar and all other energy stocks look here.
In the sector I like the alternative energy etf PBW, seen in the first chart above. Any move above 18 would complete the head and shoulders bottom and set up a run to the highs around 24. However, watch for false breakouts as this has happened twice recently. I wouldn't worry so much about this though because these breakouts occured while oil was in free fall, the USO plot is included for a comparison. PBW is nice because it is diversified among various alternative enrgy areas with an emphasis on solar which has been strong lately. I also like Archer Daniels Midland Co. (ADM) which has been getting reamed lately due to a spike in corn prices (which they actually are hedged against). ADM is making a killing off the ethanol boom as they are the leader in this sector. Higher corn prices are bad for their ethanol business but since they are also into corn processing and other agricultural services like storage and transportation they are well hedged and if fact should profit from an increase in corn prices. The chart (above) looks pretty bad, and if ADM was not such a solid company at a booming time for them I would have a hard time pulling the trigger. The ethanol sector is hot right now, and ADM is too cheap to not buy.disclosure: I have ADM calls.
2 comments:
Its funny that you mentioned adm. I was looking the same things you are looking.
I actually bought the stock too early at 36.25 and I had to take it out at 35.65.
I am thinking about reentering at these levels again but I dont know if i should reenter right away or give the stock a couple more days to further consolidate on lighter volume(that will give me more confidense). The other stocks in the group vse ande pwei have already charts with higher highs and higher lows on rising volume and for that reason I suspect also that adm has a false breakdown. Also if you connect the 5/11 and 8/01 tops on ADM and draw the paralel channel line you ll see that the price hit that lower channel line and it bounced, another technical postitive sign. Did you buy any of that?
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