Solar Energy ETFs Light It Up

In 2007, solar energy was one of the top-performing sectors in the broad stock market, but most individual stocks in that industry have been sideways to lower this year. After blazing hot performances by several leading solar stocks over the past week, I believe that situation is about to change. Quite a few individual stocks in the solar sector just broke out of patterns of consolidation, and moved back above their 50-day moving averages.

There are only two ETFs that are "pure plays" in the solar energy industry. They are Market Vectors Solar Energy (KWT - commentary - Cramer's Take) and Claymore Global Solar Energy (TAN - commentary - Cramer's Take). There are other alternative-energy ETFs, but their portfolios are not exclusively comprised of solar-energy stocks.

Looking at the daily charts below, notice that both TAN and KWT broke out above multi-month ranges of consolidation on Aug. 20.

Market Vectors Solar Energy

Click here for larger image.

Source: TradeStation Chart Analysis

Claymore Global Solar Energy

Click here for larger image.

Source: TradeStation Chart Analysis

You may recall that I bought TAN a few weeks ago when it moved above resistance made up of its intermediate-term downtrend line from the June high. However, as reported, I closed the position a few days later, when TAN subsequently retested its lows.

It appears I was just a bit early on that entry, but the Aug. 20 breakout looks much better now. Not only was it a move above consolidation, but TAN also reclaimed its 50-day moving average. In the coming days, any pullback to near the breakout level, around $25.10, would present a low-risk buy entry.

Notice that KWT has a similar chart pattern, as it too broke out above its 50-day MA Thursday. A retracement to the $38 level would represent a similar entry point in KWT, which may actually be showing slightly more relative strength than TAN.

If you've made only the slightest observations of sector ETF performance over the past two months, you already know that commodities have been getting absolutely obliterated.

---

At the time of publication, Wagner was long Market Vectors Solar Energy and Claymore Global Solar Energy ETFs, although positions may change at any time.

Deron Wagner is the founder and head trader of Morpheus Trading Group. His daily focus is managing and trading the Morpheus Capital Hedge Fund, which he founded in April of 2004. He also teaches his trading methodology with The Wagner Daily, The MTG Stalk Sheet, and The Wagner Weekly newsletters.