The alternative energy sector has been heralded by many as an investment opportunity in the US over the next four years. The rationale:
- Fossil fuels are declining in supply and are environmentally destructive. While there are those who dispute this, there seems to be enough of a "green movement" that demands alternative energy.
- Because fossil fuels are declining in supply, they will rise in costs, thus fueling an economic need for alternative energy solutions. This
seems to be questionable of late, as gas prices have fallen sharply in the
- US President-elect has made government investment in alternative energies a priority.
While there are scientific arguments for and against alternative energies, the "green movement" seems to be quite strong, suggesting strong consumer demand, and Barack Obama's stimulus plan suggest this the US government will look to feed this demand.
How can investors profit from this?
GEX: The Alternative Energy ETF of Choice
While there are a number of alternative energy ETFs, Market Vectors-Global Alternative Energy (GEX) seems to be the best one over the long-term. The primary reason I hold this view is that GEX is internationally diversified; European companies constitute 47.1% of the fund, China/Japan 11.1% and U.S. 41.8%. In light of the uncertainty in global economy, I view international diversification as something that is of paramount importance from a long-term risk management perspective. GEX meets this requirement better than many of the other alternative energy ETFs.
From a long-term perspective I remain bearish on all aspects of the US economy -- stocks, bonds, and the US dollar. While an internationally diversified ETF can help significantly in hedging against this risk, investors may wish to take a market-neutral stance by coupling any long position in GEX with a short position in a market index. Inverse ETFs like DOG and SH can help in this regard.
The Short-Term Outlook for GEX
For those looking at the market from a short-term perspective, the daily chart of GEX may be of interest.
Momentum traders could find a short-term buying opportunity on a break above 25.56, with a target of 28.17, the recent high reached on November 4, 2008 (the day of the US Presidential elections). Traders who enter on a break of 25.56 may want to see RSI break its recent high as well to ensure that the momentum is real and that the breakout is not false.