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Alternative Energy Investments: Three Scenarios For Clean Energy
by Jim Stanton, Contributing Editor, Sector Watch
Tuesday, June 30, 2009: Issue #1030
When oil prices moved to over $30 a barrel in the mid 1980s, it was considered a significant event.
It also signaled the birth of small ethanol companies in the Midwest. Many of them managed to hang around long enough to get a second wind when Iraq’s invasion of Kuwait and the ensuing Gulf War pushed oil prices past $40.
But the renewed interest in ethanol proved to be short-lived, as oil retreated below $20 a barrel just four months later. As a result, many of those smaller ethanol companies couldn’t survive as profitable alternative energy investments.
Flash forward to today, where we’ve seen crude oil prices double in just the past four months. Worldwide oil demand has soared, particularly from fast-growing countries like China and India, and although the global downturn has seen the pace of demand slow, when the global economy gets back on track, it should prove even more bullish for oil.
But there’s another sector that should rise, too…
Rising Oil Prices Spark Interest In Alternative Energy
With oil prices rising again recently, it’s sparked yet another conversation about the viability of certain alternative energies.
One ETF that tracks the performance of clean energy firms is the PowerShares WilderHill Clean Energy (NYSE: PBW) – a widely traded vehicle that gives you exposure to this still-growing sector in a safer way than investing in individual companies.
While firms like Exxon Mobil (NYSE: XOM) rake in billions of dollars per quarter from oil, PBW invests almost entirely in experimental, technology-focused “green” companies. And while these guys stand to benefit from higher oil prices just like specific oil companies, their success depends more on regulatory changes, subsidies and a global recognition of the need for alternative energy solutions.
The Alternative Energy Market Gets More Attention
When it comes to the alternative energy market, wind power, solar, hydroelectric, geothermal and nuclear power have all received attention over the past couple of years.
But when the oil market first began its march towards record high prices, it was the ethanol industry that took center stage and triggered the wider debate over cleaner energy resources.
However, the ethanol market faces a battle. Despite the government’s intervention and subsidies for the industry, newer technologies are needed in order to make ethanol more viable – and the industry’s companies profitable. A good example is Pacific Ethanol (Nasdaq: PEIX) – a company that Bill Gates invested in heavily a few years ago, paying $12 a share. Today, the stock trades for just $0.40.
Below is a daily chart of PowerShares WilderHill Clean Energy (NYSE: PBW), which is currently at a critical juncture:
Chart: http://www.investmentu.com/images/iu063009chart.gif
Three Scenarios for the Clean Energy Fund
As you can see, when the stock market bottomed out in March and oil prices retested their lows, PBW’s Clean Energy Fund did the same.
Since then, however, PBW has doubled off those lows to the June 10 high of $11.37. This is right around the swing high of $11.40 that it tested back in November, before it pulled back to the trendline drawn off the March lows.
In addition, the 50-day and 200-day moving averages are very close to crossing one another – a development that sometimes indicates a short-term top.
So what we have here is a relatively clear-cut conclusion…
- A close above $11.40 would be bullish and should lead to higher prices.
- However, a close below the trendline, currently around $10, would be bearish over the short-term.
- A close or two below the 50-day and 200-day moving averages, which are currently around $9.50, could lead to a move down to $8 or lower.
Good investing,
Jim Stanton
- Corn Crop Numbers Boost Ethanol Producers
- Four ETFs Profiting From Green Energy
- Ethanol Is on Life Support… For Now
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3 Responses to “Alternative Energy Investments: Three Scenarios For Clean Energy”
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June 30th, 2009 at 6:39 am
Your comment on Bill Gates regarding Pacific Ethanol is not quite right. He bought the preferred shares, not the common. There is a difference although it was not a good investment. Buffet makes similar mistakes at times.
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July 3rd, 2009 at 10:27 am
That was a very nice article with an honest opinion worth investigating even though MorningStar rates PBW very poorly. It doesn’t exactly represent the most viable companies availabe in the space at this time. Thank you for sharing your ideas rather than seeking to only line your own Pocket Book. You are working in our best interests, not your own, aren’t you?
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Sky Reply:
July 3rd, 2009 at 10:56 am
Oh, by the way, for your information: This is NOT a widely traded ETF. It usually averages well under 1 Million shares per day. Natural Gas and Uranium will be the next alternative energy not Solar Power! Although when we colonize the moon because we need an earth escape launch site to terra-form Mars, or more optimistically, just want to get away for that long needed vacation, S.P. and the Hydrogen Fuel Cell should come in very handy!
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