Sell Wind ETFs if Support is Violated
Both Wind ETFs are showing interesting chart patterns.
In the PowerShares Global Wind Energy Portfolio (PWND) chart we can see a Falling Wedge patern, that consists of two non-parallel trend lines that engulf price. The upwards trend line has been tested for 5 times, which is an indication of its strength.
The support trend line was tested four times, which confirms its validity and the accuracy of the pattern.
The Falling Wedge, contrary to intuition, is a Bullish pattern which predicts a breakout upwards and an uptrend in 68% of the time. We would expect price to break the resistance trend line and continue upwards, the target of the breakout calculated at $7.7, and would be reached in 70% of breakouts.
In a longer-term analysis, we can also see a strong support level on the $6.6 price level, as price tested this level 3 times and did not break it. In case of a breakout below this level we would enter a short trade, and will add to this position in case price pulls back to this level from below. The conservative target for this trade would be calculated by the Measure rule and would be $5.4.
The First Trust Global Wind Energy Index (FAN) is also showing very interesting (and quite similar) price-action.
There was a breakout of a ascending trend line and an accurate pullback to this trend line at March 19th, which resulted in a 4.3% bearish move (marked by the Red arrow on the chart). We can see the price is now on a support level at the $7.8 level.
This level was tested for 5 times, which makes it a strong short-term support level. We would expect high probability of a breakout of this level downwards, and a continuation of a bearish move. The target for such trade is at least $7.48. For the sellers, beware of the support level at $7.6 which was tested twice and can still be a barrier for price on its way down.
In conclusion, if FAN price breaks the support level of $7.8 we will sell it, expecting it to go even lower. If PWND stock will break the $6.6 we will also enter a sell trade, with target at $5.4
Steve Sollheiser is a trader and a writer with experience in trading stock chart patterns and Forex. In his site he shares his insight about chart trading and trading psychology.