Today’s commentary will start with price chart analysis for a clean energy ETF, which once led the market with triple digit gains. After a corrective period, it appears that this high flying ETF and a few of its brethren are turning up again with recent trend signals. We will start with the price chart analysis and then turn to the systematic signals.
The price chart shows QCLN surging over 400% with a monster advance from the March 2020 low to the February 2021 high. A 38% decline followed as the ETF retraced a little less than half of the prior advance with a falling wedge. Note that the pattern and the retracement amount are typical for corrections after a big advance. QCLN broke out of this wedge in June, consolidated into July-August and is on the verge of a consolidation breakout now. Another breakout would be bullish and argue for a challenge to the February highs.
Now let’s look at a systematically driven approach with two trend-following indicators, StochClose (125,5) and the Trend Composite, both of which are part of the TIP Indicator Edge Plugin for StockCharts ACP (read more here [1]). StochClose triggered bullish in late May 2020 with a cross above 60 and bearish in early May 2021 with a cross below 40. Even though these signals missed the bottom and the top, they caught the middle of the trend and this was enough for a 130% gain. The Bottom window shows the Trend Composite with similar signals.
These trend indicators turned bearish in early May after the ETF had already fallen over 30% from its high. This is the nature of trend-following: signals lag. Testing and experience suggest that trend signals like these are successful around 40% of the time and the average gain is usually more than three times the average loss. At this point, QCLN has bullish trend signals and these will remain in force until countered with a bearish signal.
Note that several more ETFs triggered bullish for StochClose over the past week and many of these were the high flyers from March 2020 to February 2021. TrendInvestorPro tracks these signals for a core list of 128 ETFs. Looking for more trend-following signals and a systematic approach? Subscribe and get immediate access (click here). [2]