Editor’s note: Any and all references to timeframes longer than one trading day are for purposes of market context only, and not recommendations of any holding timeframe. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don’t have the resources, time or inclination to constantly monitor and manage your positions, leveraged ETFs are not for you.
In this installment of Direxion’s Xchange, we tackle the latest moves in clean energy stocks and analyze trends in the clean energy sector by taking a close look at the benchmark index for Daily Global Clean Energy Bull 2X Shares (KLNE) ETF. We will answer the question, is this timing a trap or an opportunity for traders?
- Recent Clean Energy stock trends
- KLNE ETF and A Setup Worth Watching
Recent Clean Energy Stock Trends
Over the last year, the S&P Global Clean Energy Index* has underperformed the S&P 500 index* by over 13% (as of 11/18). More recently, clean energy stocks have bounced back with the index up over 8% in the last month. The index sits at 2,038. This is 6% above its 50-day moving average* and 5% above its 200-day. At 1,922, the 50-day is 1% below the 200-day’s 1,937 as both averages sit close together.
The question traders should be asking is whether any convergence will be a golden cross* or a death cross*. A golden cross occurs when a short-term moving average crosses over a long-term moving average to the upside. The opposite is a death cross when a short-term moving average crosses over a long-term moving average to the downside. Traders consider a golden cross a bullish indicator, while a death is bearish.
This would be the second convergence in 2021 when the 50-day dropped sharply after the index peaked in January 2020. After this clean energy stocks were stuck in the mud and did little until October when the names regained momentum thanks to the segment gaining attention with the infrastructure bill beginning to materialize and eventually passing Congress.
KLNE ETF and A Setup Worth Watching: The 50-Day and 200-Day Moving Averages are Converging
Source: Bloomberg Finance, L.P., as of November 17, 2021. The referenced index is shown for informational purposes only and is not meant to represent the Fund. Investors cannot directly invest in an index. The performance data quoted represents past performance. Past performance does not guarantee future results.
Whatever one of the crosses comes to fruition the setup is likely worth watching for traders.
The S&P Global Clean Energy Index trades 17% above its 52-week low, but 28% below its 52-week high (and all-time highs) seen in January. On the positive side, the Relative Strength Index* over short and medium-term periods remains well below 70, which would indicate an overbought level, implying there may be more room to run to revisit highs from a technical point of view.
The Direxion Daily Global Clean Energy Bull 2X Shares (KLNE) provides 200% exposure to the S&P Global Clean Energy Index on a daily basis. The top holdings include Enphase Energy Inc. (ENPH), Vestas Wind Systems A/S (VWS), Plug Power, Inc. (PLUG), SolarEdge Technologies Inc. (SEDG), Consolidated Edison, Inc. (ED).
Direxion Daily Global Clean Energy Bull 2X Shares (KLNE) Index Holdings as of 09/30/2021
|Vestas Wind Systems||8.27|
|ENEL Global Trading||3.53|
The S&P Global Clean Energy Index (SPGTCLNT) is designed to track the performance of companies from developed markets whose economic fortunes are tied to the global clean energy business. The Index has a target constituent count of 100 and is limited to those stocks traded on a developed market exchange that meet or exceed, at the time of inclusion, $300 million in total market capitalization, $100 million in float adjusted market capitalization, and $3 million average daily value traded over a six month period. The Index is rebalanced semiannually. One cannot directly invest in an index.
The Relative Strength Index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset.
The S&P 500 Index: The Standard and Poor's 500 Index is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.
Moving Average: A calculation that takes the arithmetic mean of a given set of security prices over the specific number of days in the past; for example, over the previous 15, 30, 100, or 200 days. Its purpose is to mitigate the impact of random, short-term price fluctuations over a specified time frame.
Golden Cross: A chart pattern in which a relatively short-term moving average crosses above a long-term moving average. The golden cross is a bullish breakout pattern formed from a crossover involving a security's short-term moving average (such as the 50-day moving average) breaking above its long-term moving average (such as the 200-day moving average) or resistance level. As long-term indicators carry more weight, the golden cross indicates a possible bull market on the horizon and is reinforced by high trading volumes.
Death Cross: A technical chart pattern indicating the potential for a major sell-off. The death cross appears on a chart when a security’s short-term moving average crosses below its long-term moving average. Typically, the most common moving averages used in this pattern are the 50-day and 200-day moving averages.