Commodities Countdown

The Electric Car Needs Lithium. Does Your Portfolio?

Greg Schnell

Greg Schnell

Chief Technical Analyst, Osprey Strategic

Lithium is not a well-known industry group. However, with the attention towards electric cars and distributed power in neighborhoods, the market is currently fixated on energy storage. Elon Musk, President of Tesla, is also doing his best to drive it to center stage. With the all-out giddiness towards the Tesla, cars like the Volt, Leaf, and Prius seem relegated to the back of the theater. However, Prius is the best-selling electric car by far, but the Pied Piper of the electric world has to be Elon Musk as this point. So, on the back of the giga-factory (that is a real thing) which was starting up in the first quarter of 2016, we need to know more about the Lithium industry suppliers. I went on a hunt to find publicly listed companies listed in the US and came up with 13 companies. Lots are very tiny and fraught with risk with tiny market caps and thinly traded shares. However, some big names could be important here.

Here is the list I found of tradable entities. Feel free to send me any others that trade in Canada or the USA.


I ranked them by price so you can see the difference. The penny stocks at the bottom are for gamblers only.  I plan to let someone else figure out what is real amongst those. However, the price change over three months is demonstrated in the change column and the % change column.

Here is an RRG Daily Chart. Almost all of the stocks in this list are in, or very close to being in, the green quadrant which means the momentum and the relative strength is better than the $SPX. I used a daily chart with 11 days. On a short term basis, they may dip down below the center line and then turn back up into the green box. The bottom line is the group is currently doing well but gently pulling back over the last few days.

Here is the same group with a weekly look. Still excellent. The trails should be pointing northeast towards or in the green box. We can see there is a high level of correlation lately with almost everything outperforming the $SPX index. 

So with that, let's look at the stocks with a price above $10.00. 

Tesla. Elon Musk's marketing machine. With the new model orders blasting past estimates, the stock surged. Now the volume is leveling off but the price is holding up so far.

Albemarle has been performing great! It recently broke out to new highs, traded sideways and in the last few days left the base station for higher highs.

Here is FMC Corp. I also did a Don't Ignore This Chart article today on this stock. This stock has major Ag Chemicals but the lithium group might just be the little kicker.

Here is Johnson Controls. JCI. 

Lastly is SQM which is a Chilean miner that has been around for almost 50 years.

The point I want to make is that these companies are all starting to improve. If you want to roll through the rest of them you can develop your own chartlist to keep track. With all the attention to Lithium, this appears to have some room to run. One word of caution: There is some work going on, all the time, on different battery technologies. Should the underlying business demand change to a sulfur based battery as an example, this industry will wane quickly. Investors in Ballard Power (BLDP) or Plug Power (PLUG) will be reminded of a euphoria in mobile energy that went bust. We are early in a trend in Lithium, perhaps a multi-year trend, but don't get married to the story. Focus on the price action of the investors and you'll be able to leave with your gains.

I will be hosting a Commodities Countdown 2016-04-28 webinar on Thursday, April 28th, 2016. I hope to give a review of different areas of the market now that we are at month end. Perhaps you'll have time to join me.

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Good trading,
Greg Schnell, CMT, MFTA

 
Greg Schnell
About the author: , CMT, MFTA is Chief Technical Analyst at Osprey Strategic specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More