Exiting Clean Energy (PBW)

We have received an exit signal on our Clean Energy fund with today's action. This has been warning us for a couple weeks that things might not actually be as good as they seem on the surface. The Relative Strength had broken its uptrend while price was attempting to hold a multi-year breakout. Usually a divergence in the Relative Strength like that leads to short term weakness. We were also watching the uptrend support, 20 WMA, and support zone from the prior consolidation and breakout...All those levels were broken today. We saw the market close convincingly below the $6.00 stop we had in place and will take our exit signal at the open tomorrow.

Here is a weekly view of the failed breakout attempt and then subsequent roll over in price. Let's zoom in a bit to get a closer look at the breakdown.

This is the closer look of the 8-month uptrend channel. If you recall we took partial profits after its big run up to the $6.35 mark (here). We then saw the stock push through the overhead resistance level and we bought back our shares (here). Unfortunately that happened to be the top it seems. I noted that we should expect some "healthy consolidation" above the $6.50 area when we added back to our position. We did see 5- weeks worth of cooling after our entry, but the last 3 weeks have broken below that $6.50 support and then today finally took out our lower support band. With the Relative Strength having broken the uptrend also, it looks like a more hefty correction is needed before continuing.

Here is a look at what we should be watching for at this point going forward. We should book our gains and wait for something more positive to develop.

So here is the potential Bullish case I can make for this space. I can see this pullback creating a possible Right Shoulder formation to a large reversal base. Remember with these technical patterns, in a positive trending and strong stock, reversal patterns will build upon themselves and often create other opportunities with larger patterns that form. When we entered this position back in May it had just broken out above a small reversal Head/Shoulder pattern at $4.80. That pattern completed itself and has now formed the Head portion of the larger potential formation. Positive action often begets more positive action.

 Now that we have no position and have booked a 25% gain since the initial pattern breakout, we can observe with no bias what happens next. If it forms the Right Shoulder and sets up, we will get right back into this baby. But as of now the risk simply outweighs the reward. That's all timing the market is; it's trying to get your money in when the gettin's good and taking it aside when the probability shifts to a more negative likelihood.

Bottom line, long-term this is a space to be invested in and be mindful of. But short-term it is time to take profits and let it settle out in a more favorable setup.