In a complex world there are no coincidences. When examined more closely, seemingly unrelated events may have more in common than at first glance.

This is sometimes referred to as the “butterfly effect,” one of the basic concepts in Chaos Theory and its sister scientific discipline Complexity, which puts forth the notion that because of the interconnectedness of all events in a complex system, the simple act of a butterfly flapping its wings in a remote region of Africa can develop a set of responses within the system which trigger a hurricane in the Atlantic Ocean.

There is no place where the “butterfly effect” is more evident that on Wall Street and we are witnessing a lot of wing flapping lately.

Take for example the recent news that Siemens Energy AG’s (OTC: SMEGF) Gamesa unit, the world’s largest manufacturer of wind turbines, is having problems. Specifically, it seems the company’s latest generations of wind turbines can’t withstand the rigors of daily operation.

Moreover, as CNBC recently reported, the company’s CEO Christian Bruch recently told journalists on a conference call that ‘“too much had been swept under the carpet” at Siemens Gamesa and that the quality issues were “more severe than [he] thought possible.”’

In addition, analysts are sounding the alarm not just for Siemens but for the whole industry. All of which has prompted Siemens to conduct an “extended technical review” into the problems, which will cost an estimated $1.09 billion.

That’s an expensive butterfly.

The details are sketchy, but analysts note that the current technology being deployed, especially for offshore wind farms, has not met expectations as maintenance and replacement costs are outpacing the operational integrity of the equipment.

Some analysts are suggesting that other wind turbine producers may be facing similar issues, and that the problems may be industry wide.

The central tenet is that the latest generation of wind turbines, which can generate 15 times the power of their predecessors, are just too big to withstand the conditions in which they are being operated. The net result is that even though they can generate more power, they don’t last as long as the smaller turbines of the past.

All the savings and efficiencies gained on one side of the equation are lost when the turbines require frequent repairs and face early replacement.

Making matters worse, the war in Ukraine has introduced Chaos into the equation, because Russia was a major provider of the nickel, and Ukraine the steel, used for a large portion of the turbines made in Europe. Analysts estimate that supply chain and inflation issues have led to a 40% increase in costs for the industry.

Complexity Revs Up

The stock market is as pure an illustration of Complexity as there is. In this case, its message is that wind power has lost its luster as an investment. That is unless you dig a little deeper.

Siemens Energy has problems and its falling stock is emblematic of its situation. However, the company’s problems may or may not be as widespread, or as potentially dire in the rest of the industry, as some analysts suggest. In fact, there are some wind and renewable energy companies whose shares are in much better shape.

Consider Spanish utility Iberdrola SA (OTC: IBDRY), whose global network offers services in the U.K., the U.S., Mexico, France, Australia, and Brazil. Much of its power is generated by renewables.

Wind is part of IBDRY’s portfolio. But because the company has a diversified energy portfolio which includes photovoltaic energy generation, power storage, and an electricity wholesale business, its shares are breaking out to new highs as electricity demand rises, at least partially due to electric vehicles.

IBDRY’s price chart shows that investors have no problems with the way the company is being run:

 

Another company whose shares did not crash with Siemens is Orsted SA (OTC: DNNGY), which is in a similar business to Iberdrola with the addition of bioenergy and thermal electricity production in its portfolio.

Orsted’s shares are in a consolidation pattern which may develop into a bullish uptrend over time. I base this on the rising Accumulation Distribution Indicator (ADI), a sign that short sellers are leaving the stock.

 

On the other hand, shares of Vestas Wind Systems (OTC: VWDRY) are on the verge of joining Siemens Energy’s down trend. The stock recently closed below its 200-day moving average.

Oil Service Stocks Get a Bid

Investors are adjusting their expectations. We can see that in the action of the good old fashion energy sector, where the prices of crude oil and to some degree natural gas have likely bottomed out.

Of special interest is the action in the oil service sector. You can see this quite well in the improvement portrayed by the VanEck Vectors Oil Services ETF (OIH), where both ADI and On Balance Volume (OBV) are turning up.

The positive money flow into OIH is a result of the increase in activity in the global offshore oil exploration segment. Companies such as Schlumberger (NYSE: SLB) offer support services to oil majors and independent exploration companies.

An improvement in oil services often precedes a rise in the price of crude and an accompanying rise in the share prices of major oil companies, refiners, pipeline operators, and the rest of the oil industry.

Bottom Line

Complex systems adjust. Investors are having second thoughts about direct investments in wind turbine manufacturers.

On the other hand, it pays to dig deeper. That’s because markets adjust. The woes of turbine manufacturers may be positive developments for other sectors, such as utilities which focus on renewable energy sources while pivoting to oil service stocks.

If you read the headlines without digging into the details, you may miss the real story, which in this case, is that investors seem to be pulling away from wind generated energy manufacturers but not necessarily the role wind energy plays in electricity generation.

Moreover, this move suggests that Complexity’s influence is maneuvering the energy complex into a new operational state where both renewable and traditional energy will play a combined role.

This butterfly seems to be looking for balance.

Editor’s Note: if you’re nervous about mounting market risks, I suggest you consider the advice of our colleague, Jim Pearce.

Jim Pearce is chief investment strategist of our premium service Mayhem Trader. He has spent the past year perfecting a powerful indicator that’s designed to make money in a hostile market.

Jim has a proven knack for reaping profits from Wall Street chaos. To learn more, click here.

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