Alternative energy stocks climbed higher on Monday as strong moves in both crude oil and natural gas drove prices for energy stocks higher. With natural gas prices climbing, investors will be looking for alternatives during the height of the summer cooling season. The Nation Oceanic and Atmospheric Administration reported above normal temperatures throughout the U.S., which caused natural gas prices to rally 3 percent on Monday.
NOAA released their 8-14 day forecast on Monday, showing that the majority of the U.S. will experience above normal temperatures during the next two-week period, which will increase electricity demand as business and residential buildings increase their cooling demand. Higher than normal electricity demand in the face of higher prices of natural gas will drive consumers to alternative energy sources to compensate for the lack of supply generated by peak natural gas produced electricity.
Diesel and bio-diesel demand is also affecting clean energy stocks. According to the Department of Energy, over the past four-week period Distillate fuel demand has averaged about 4.0 million barrels per day, up by 9.2 percent from the same period last year. Distillate stocks, which are made up of diesel fuel and heating oil, declined in the week ending June 12, 2013 and are currently at the bottom end of the five-year range. Demand for diesel is rising just as stocks are at their lowest levels during the past five years.
The ICLN iShares S&P Global Clean Energy Index is experiencing a solid rally on the heels of strong demand for energy products, and a broad market rally driven by speculation of what the Federal Reserve will say when it concludes its two-day FOMC meeting on Wednesday June 19, 2013. Expectations from investors are that the Fed will keep interest rates unchanged and refrain from discussing any tapering of their current bond purchase program.
The technical picture for the ICLN is positive with the ETF attempting to break above resistance near a downward sloping trend line at 9.05. A close above this level would likely test the May closing highs near 9.40. Support on the ETF is seen near the May and June lows near 8.65, which coincides with the 50-day moving average (technical analysis provided by Financial Trading).
Momentum is increasing even though the MACD (Moving Average Convergence Divergence) index is printing in negative territory. The trajectory of the MACD is changing and pointing to a potential buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.
Another technical analysis tools that can be used to gauge the relative value of a security is the relative strength index (RSI). The RSI is an oscillator that measures overbought and oversold level as an index between 100 and zero. The current RSI print is 57, which is in the upper end of the neutral range, but well below the overbought trigger level of 70. This means that although the ICLN is moving higher, it still is not overbought and has room to move to the up side.
Marcus Alexander Holland is editor of financialtrading.com, a website that covers all areas of derivatives trading including trading broker reviews, economic and business news, education and live rates. He has been trading the markets since graduating in Business and Finance from the University of Plymouth in 2006.