Clean Energy Stock Momentum Beating S&P 500: Technical Analysis

Clean energy shares are outperforming the Standard and Poor’s 500 Index for the first time in six years and momentum indicators signal more gains for the industry, according to Sanford C. Bernstein & Co.

The S&P Global Clean Energy Index, which includes companies from Tempe, Arizona-based First Solar Inc. (FSLR), the world’s largest thin-film solar manufacturer, to Electric Power Development Co. in Tokyo, has climbed 20 percent in 2013, compared with a 14 percent advance in the benchmark gauge for American equities. Indicators measuring the speed of the rally suggest the advance isn’t over, according to Ayush Nagaraj, a Hong Kong-based sales trader at Bernstein, the division of New York-based AllianceBernstein LP.

The 14-week relative strength index for the ratio between the indexes rose to 59.8 on May 3 after briefly surpassing 60, the highest since May 2008, according to data compiled by Bloomberg. The weekly moving average convergence/divergence line for the ratio -- the difference between its 12-week and 26-week exponential moving averages -- rose above zero last week for the first time since July 2009.

“After years of underperforming the broader markets, alternative energy stocks have finally bottomed out,” said Nagaraj on May 3 by e-mail. “This is corroborated by both the MACD and RSI showing bullish signs. The fact that the clean energy index has now become an outperformer after five years brings it back into the scope of long-only fund managers whose primary objective is to beat the benchmark.”

Correct Call

Nagaraj in January used Nomura Holdings Inc.’s 14-day relative strength index to correctly predict stock of Japan’s biggest brokerage would retreat after a 13-day advance.

The price ratio of the clean energy index to the S&P 500 is up 5.5 percent this year through yesterday, after tumbling in each of the past five calender years for a total loss of 88 percent, according to data compiled by Bloomberg. Other constituents of the clean energy index include China’s GCL-Poly Energy Holdings Ltd. (3800), the world’s biggest polysilicon maker, and Enel Green Power SpA (EGPW), the clean-energy unit of Italy’s biggest utility.

The global solar market doubled in size between 2010 and 2012 while investor sentiment remained indifferent, Michael Parker, an analyst at Bernstein, wrote in a report dated May 2. Growth will be driven by adoption in low-subsidy and unsubsidized markets amid a continuing drop in installed cost, the report said.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

To contact the editor responsible for this story: John McCluskey at j.mccluskey@bloomberg.net

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