John Jeffery
John Jeffery

The deteriorating investment climate and recessionary environment of the last few years has had some interesting impacts on social behaviour and interests. One notable impact has been the drop off in the political and public support to climate change solutions, especially with the media focus revolving more around employment security, government debt and more immediate concerns.

This could all be about to change globally as economies continue to demand energy and the consumer returns to a more environmentally aware mind set. Evidence for this is already occurring in Europe and closer to home in Australia. The political posturing and behind the scene wrangling following electoral stalemate means that the Green Party is likely to have more say about federal policy than ever before. As such, we can expect to see an increase in government funding for renewable energy projects and innovations as well as a rise in the renewable energy obligations of major electricity providers. Add to this the recent regulatory certainty about the structure of Australia's renewable energy legislation which should help certain firms find potential customers and you have the potential for growth.

From the chart below, it’s clearly evident that IFN has had a rough time of late. The major falls in price and drops in valuations have been the result of an inability to sell German wind farm assets at an acceptable price, not surprising given the economic backdrop in Europe. If, as I have suggested, the prospects for IFN improve, then a very profitable trade could be opening up.

click chart for more detail
click to enlarge

There are stirrings from a technical perspective that a bounce may not be too far ahead. ProfitSource is signalling an Elliott Wave 5 buy trade for medium term investors, whereas a price trigger from MACD insinuates that now is a good time to buy for short term players. Support is offered by the reversal bar of the 26th of August (although this is not particularly well tested) and the low on this day offers a good position to place stops. A challenge to any price rise can be expected around the 80 cents mark should the trade begin to pay off. The resistance (shown by the upper blue line in the chart) will need to be managed appropriately and progressive stop strategies employed to lock in profits. Subsequent to this the $1 mark itself looks like a prominent resistance level.

Finally, and also backing up the fundamental argument, it’s incidental that some of the major brokers and research houses have offered price targets around the $1 mark for IFN. Of course, our job is to come up with our own version of events, but it is nice to see that other market professionals agree. An increase of 50% from today’s close is not a bad return, should this trade work out.

Stay sharp

John Jeffery