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Bowen Khong
green energy

ETF Database shows that during 2020 ACES brought in $333.75 million in net inflows, increasing its total assets to $783 million and positioning the fund at one of the top clean energy ETFs, only preceded by multi-billion household ETFs including Invesco’s WilderHill (PBW) and BlackRock’s Global Clean Energy (ICLN).

Meanwhile, the fund delivered a 140% gain for investors by the end of 2020 while it could be poised to see some further upside in the following months as technical indicators are signaling that a new bullish phase is unraveling for ACES.

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ACES’s diversified portfolio – one of its strongest features

According to ALPS official website, the firm’s Clean Energy ETF is mostly comprised of wind (21.8%), solar (20.6%), and efficiency-focused (23.2%) companies, while roughly three-quarters of ACES’s entire portfolio is concentrated in the U.S.

The degree of diversification of the fund’s portfolio is perhaps one of its most appealing characteristics, as its returns can experience lower volatility due to the small relative constituent of each individual company held by ACES.

In fact, its top 10 holdings contributed less than half of the 140% gain the fund reported last year even though some of them were heavy hitters in the high triple-digit zone as is the case of Tesla (TSLA), Enphase (ENPH), and Plug Power (PLUG).

The degree of intra-sector diversification positions ACES favorably to both capturing sizable rewards when its promising constituents outperform the industry average performance, while also limiting its downside risk against the natural volatility that ‘hot’ stocks commonly face.

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Is ACES ready to take a breather?

The furious bull run that pushed up the price of ACES recently may be starting to fly too close to the sun based on multiple technical indicators, even though the future still seems bright for this ETF.

First of all, the price has broken the upper boundary of its parabolic trend while it has also been forced outside the limits of its upper Bollinger during December 28 – a move that was quickly responded with some strong selling.

Meanwhile, both the RSI and the MACD have been forming a rising wedge – a pattern that could lead to a serious short-term price reversal once the momentum reaches an unsustainable peak.

Although that sounds a bit discouraging, the situation could actually lead to a healthy pullback that could end up attracting new buyers who would fuel a brand new bullish phase.

Interestingly, a heavy-volume session took place on January 5, when roughly 350,000 shares exchanged hands – nearly 2.5 times the 20-day average for the ETF.

The fact that the price did not respond too much to that uptick in the daily volume indicates that many sellers were willing to dump their positions at $81 per share.

If that selling spree continues over the coming days to a point when multiple indicators are signaling an overheated rally, then chances are buyers may be out of ammo to pick up the pieces – which would result in a short-term pullback.

Promising mid-term outlook for ACES

Despite these short-term downside risks, the latest price action seen by ACES has pushed this Clean Energy ETF to a brand new bullish phase as it has moved to the 2.618 Fibonacci extension deriving from the early 2020 top and bottom.

Interestingly, market players bought the 29 December dip when the price touched that particular area of support at $77 per share – a marker that could now serve as a launching pad if the price were to retrace in the following days or weeks. That said, it is also possible that a pullback might go even further than that.

If that is the case, there will still be multiple support levels along the way including the $75 20-day SMA – a level that shows confluence with the upper trend line shown in the chart above – along with the $68 level, which served as a floor in early December before the strong uptick that ended up pushing the price to its current intraday all-time high of $83.73 per share.

On the other hand, if the price action holds steady at this 2.618 extension and the uptrend resumes, the next target could be extended to $97 for a potential 26% upside.

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