Using Volatility to Profit from Energy Top Stocks

Volatile. Adj. 1. evaporating quickly 2. a) unstable; explosive b) fickle

Indeed, all those adjectives describe the current market.

Long-term positions and savings have evaporated quickly. And broader market indexes have certainly been unstable and fickle.

But it's the explosive aspect of volatility I'd like to explore today, especially when it comes to clean energy companies on Wall Street.

Clean Energy: Capitalizing on Wall Street Volatility

Take a look at this chart:

It's the epitome of volatility: a near 75% swing from mid-November to early January ― which we can now call the Obama-bump ― followed by a 30% fall the next few weeks. Then, nearly sideways trading until early February was followed immediately by another ~30% fall the rest of the month. And the fickleness has continued in March, with a 15% uptick or so in the last few days.

It's enough to drive you mad. And it's also enough to make a lot of money.

You see, I've been watching clean energy top stocks on the Street for years. . . long enough to know their fair value and price trends by heart. That's the only way to profit in this market ― know an industry inside and out, and stick to it.

That way, you can exploit all the nuanced price movements that are classified as volatility by those not as familiar with a certain sector.

I can tell you, for example, that clean energy top stock rose in November on the outcome of the election and the widespread perception that the new President and Congress would be more inclined to promote cleantech than their predecessors.

That perception, though valid, quickly waned because of Madoff, TARP, credit default swaps, stimulus negotiations, and all their negative impact on the market, clean energy included.

Then came the anticipation of the stimulus, which drove clean energy top stocks higher with its $104 billion for clean energy and green infrastructure.

And then came the public release of the bill-to-be. It wasn't received well, to say the least. Investors wondered how the money would be spent, how quickly it could create jobs, and even if it would help at all once the billions were wrapped in red tape. 

Those worries, coupled with incessant foreclosures and mounting unemployment, kept clean energy top stocks submerged. Now, even more favorable cleantech legislation has been proposed, including the much anticipated cap-and-trade, and national renewable energy standards are causing clean energy valuations to rise once again.

Unstable and explosive at the same time...

But if you pay close attention to one sector, like I have, clear price patterns begin to emerge that can be used to harness volatility during instability and ride it during explosiveness.

Clean Energy Top Stocks: Buying Drops, Selling Pops

Take a look at that same chart once more, stretched out to six months this time:

Everything changed after mid-November, when new lows were established. If you were in long-term positions before then, then I don't have to tell you about the red ink now spattered on millions of portfolios.

But you can't make money now by looking back. You have to find the price troughs established by recent lows, buy at those prices, and let news and legislative-led volatility do the rest.

I certainly can't cover all Wall Street clean energy top stocks here, but I'll use the top stocks in the above chart as examples you can extrapolate to the broader cleantech market.

A quick glance at any finance webpage will tell you that 52-week lows for those top stocks are:

• American Superconductor (NASDAQ: AMSC), $8.22

• Renesola (NYSE: SOL), $2.02

• JA Solar (NASDAQ: JASO), $1.55

• Suntech Power (NYSE: STP), $5.09

I know from experience and proprietary research, which I provide to readers of the Alternative Energy Speculator, that fair short-term value for those top stocks is:

• American Superconductor (NASDAQ: AMSC), $18.00

• Renesola (NYSE: SOL), $4.00

• JA Solar (NASDAQ: JASO), $4.00

• Suntech Power (NYSE: STP), $12.00

Assuming that a low of $8.22 for AMSC is an outlier, all you have to do is buy when ongoing volatility pushes these top stocks near their lows and sell for profit when the explosive side of volatility rears its head, like it has the past few days.

Of course, this means accepting that volatility is currently inherent in the market and will be for quite some time. Not hard to do considering ongoing unemployment, reduced consumer spending, and a lack of credit that is delaying projects that create value.

Using this strategy, you could've racked up serious gains just by playing these few stocks over the past few months just as I've indicated ― buying and selling irrational pops and drops for profit.

But that implies being intimately familiar with one sector. Certainly you're not expected to know the low prices and fair value for hundreds of stocks across dozens of sectors.

You can go it alone, or you can have an expert help you.

Readers of The Speculator, which focuses only on cleantech, have been using advice like I've just given you to play clean energy volatility for profits.

They've done it on each of those top stocks above and many more. And there are even more to come as volatility rules the day.

In fact, we've played JA Solar for profit four times already for total winnings of over 97%. That's just from playing one stock multiple times, mostly on bad news drops and good news pops.

And we're not slowing down anytime soon.