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Is Plug Power an Opportunity or a Warning?

Based on the fundamentals, investors have ample reason to be bullish on Plug Power (NASDAQ:PLUG). Overall, the political narrative bodes well for PLUG stock. As you know, during the campaign trail, then-presidential candidate Joe Biden made a big fuss about environmentalism. Whether he comes through or not is a question but listen – these are emotional markets and going green is a great story.

Image of a man driving a forklift in a warehouse.
Source: Halfpoint/ShutterStock.com

Further, the Texas winter storm that tragically devastated so many households and gave a kick to the sensitive area of the renewable energy industry (on the political front, not necessarily the science) should technically support PLUG stock. That’s because according to the Office of Energy Efficiency & Renewable Energy, fuel-cell technologies have demonstrated resilience against temperature extremes.

However, the market and collective human sentiment are cruel things. From Jan. 26 to March 8 of this year, PLUG stock hemorrhaged nearly 48% of value. And the red ink splatters really started to get gnarly just as the cold snap in the Lone Star State started to get underway. Why?

First, I believe partisan politics truly did a number on renewable energy and anything related to clean power infrastructures. You have popular talking heads on various media outlets blasting frozen wind turbines as one of the catalysts for the troubles. In other words, these folks painted a picture of renewable energy being unreliable.

Unfortunately, the message sticks because renewable energy is intermittent, which to some folks might translate erroneously to unreliable. Besides, that’s not the point – a collection of factors, including poor infrastructure and mismanagement, contributed to the problem.

Second, we’re living in a time when facts don’t really matter as much as narratives that align with our personal belief systems. In my view, scientifically, PLUG stock should make it out of this crisis A-OK. But the conflation of frozen windmills with fuel cells may have hurt trading sentiment.

PLUG Stock Is at a Technical Crossroads

Right now, the temptation among bulls is to encourage others to bid up PLUG stock as an irrationally volatile security. Again, on a scientific basis, I believe that fuel cells and hydrogen energy and storage solutions offer an intriguing alternative, particularly for power structures located in non-temperate climates.

But the counterargument, of course, is the sentiment of the masses. It’s great that you and your online buddies believe that PLUG stock is grossly undervalued at its present price point. But unless everybody else feels the same, the available optimism may not be enough to overturn the bearishness.

You just need to look at the charts since early December of last year. Heading into the new year, Plug Power stock set up a bullish pennant formation, as evidenced by the sharp rise in early January representing the flagpole and the funneling of bullish and bearish price action into early February as the pennant.

Plug stock technical chart
Click to Enlarge
Source: Chart by Josh Enomoto

Usually, technical analysts contend, at the apex of the pennant, you will see a breakout move in the target security. Instead, Plug Power shares tumbled badly into Feb. 17, likely due to the politics of the Texas cold snap.

However, from Feb. 17 to March 8, PLUG printed what appears to be a descending broadening wedge. Broadening wedges symbolize chaotic trading, as the “spread” between the bullish and bearish price action becomes wider as the pattern develops. Therefore, you can reasonably conclude we’ll see choppiness over the next several sessions.

But here’s an interesting twist: descending wedges are not necessarily negative. Indeed, many technical analysts consider the formation to be bullish. In this case, PLUG stock may be printing a reversal pattern.

Thus, a possibility exists that we could be near a bottom, in which case you’d want to buy shares.

A Perplexing Opportunity

Fundamentally, the bullish argument would seem to make the most sense. As I stated, evidence indicates that fuel-cell technologies perform well no matter what the weather condition (within reason). So it’s reasonable that the Street wakes up to the science and bids PLUG stock back up.

At the same time, I don’t like how PLUG shares failed when the bullish pennant formation developed. This is usually a reliable pattern. Further, you have negative sentiment in the technology sector, which isn’t a great look for Plug Power.

Ultimately, here’s my take: if you want, take a modest position in PLUG stock now. But keep that powder keg dry in case this second apparently bullish pattern also fails.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2021/03/is-plug-stock-an-opportunity-or-warning/.

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