QCLN A H2 sell

Clean energy stocks are not able to sustain a bid. In 2019 and 2020 the group was the hotspot for investors, despite the COVID crash. The relative strength peaked around the time of the “blue-wave” election, which took place early in 2021. This was the peak of optimism and acceleration for green initiatives, championed in part by Congresspeople like Alexandria Ocasio Cortez. The bubble started to burst at that time.

Since nearly two and a half years, the First Trust NASDAQ Clean Edge Green Energy Index Fund has been losing ground both on an absolute basis as well as relative to the S&P 500. I’ve given the ETF a sell-rating as I expect further declines in the second half.

QCLN: Poor relative strength last 30 months

QCLN, according to its issuers, invests in companies that operate across the energy sector. The fund invests primarily in growth and value stocks from companies with diversified market capitalization. It invests in companies that promote environmental responsibility. The index that it tracks is rebalanced and reconstituted semi-annually.

QCLN has a modest annual expense ratio (0.58%) and a low dividend yield of 0.68%. The daily volume is down to 77,000 shares a day, with a total net asset of $1.6 billion. The volume used to be much higher. The ETF still has a decent tradeability, as the 30-day median spread between the bid and ask is only eight basis points. However, using limit orders in illiquid trading periods is prudent. As of July 3, 2023 the median market capitalization is $2.7 billion. QLCN is trading at a 22.0 price to earnings multiple, which is 4.0 times his sales.

Morningstar data shows that QCLN primarily is a SMID cap growth fund. In the style box, you can see that only 12% of QCLN is large cap and the same percentage as value. This means that this small, low-yield fund will be volatile.

QCLN: Portfolio & Factor Profiles

Tesla (TSLA), which accounts for more than 10 percent of the allocation, is the largest position. QCLN has 58% of its assets concentrated in the top 10 equity positions. Sector-wise, the mix includes Information Technology, Consumer Discretionary, Utilities, Materials, and Industrials, though many companies have similar functions, such as automobile manufacturing, semiconductor production, and renewable energy development.

QCLN: Information on the Portfolio, Top Holdings and Industry Exposure (March 31st, 2023)

According to Equity Clock, QCLN has a tendency to perform well in the second half of the year. Early July to December has seen a total return of more than 10% over the last eight calendar years.

QCLN: Bullish 2-H Commonly Seen

The Technical Take

The chart is risky to me, with a high valuation but one that’s arguably cheaper than a few short years ago. In the graph below, QCLN is continuing to consolidate into a bearish triangle pattern. This formation is bearish because the 200-day long-term moving average is negative sloped, and it comes after a change in trend that occurred in 2021. This continuation pattern indicates that the next move is in the direction of the larger trend, which is down. Support is in the range of $43-$45, while resistance is in the mid- to high-50s.

The RSI reading on the top chart, however, remains in bullish territory. (between 40-90). Watch volume trends as well – a breakout over $60 or under $43 could indicate a major move. Last but not least, the high volume of shares in the $60-$70 range helps to confirm my bearish hypothesis. Even if the price breaks out, natural sellers may still look to sell their stock at their original purchase price in order to make up for lost time.

QCLN: Declining 200DMA a bearish cue, watch for $43 as key support.

The Bottom Line

QCLN is rated as a sell. Its concentrated portfolio of growth stock in a difficult collective niche, over the past few years, is not cheap. Price action remains bearish despite positive seasonal trends near-term.