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JA Solar, LDK Solar, ReneSola: Solar Selloff

Stocks in this article: TSL STP LDK JASO SOL

It's easy to make the case that for a sector as volatile as solar, profit-taking after this year's rally -- which reached a crescendo after last week's Solar Power International conference in Los Angeles -- is not a surprising event, and it might not be long-lasting either. The solar sector has traded away from a general market selloff several times in recent months.

It's also a matter of pullbacks after recent gains that leave some stocks still well ahead of where they were just a month ago. LDK Solar, for example, even with a 14% loss on Tuesday, is still at a higher share price than it had been at any point in the last year, including last January, its previous one year high mark.

In terms of the overall action in Chinese solar stocks, the group seemed to reach a collective plateau last Thursday, and start heading south from there, so this isn't a one-day event.

The downward trend since a short-term peak last Thursday was also the case for the Chinese stock considered the best long-term play also, Trina Solar (TSL - Get Report).

With bullishness still the mode in solar, Jefferies analyst Jesse Pichel was arguing by last Friday that the selloff in solar was a reason to buy. The Jefferies analyst cited the currency concerns, and to a lesser extent the trade war, as culprits for the selloff, but said the events were overblown.

Among the biggest bullish signs last week was an announcement from First Solar (FSLR) about another capacity expansion, a notable event as First Solar has been described in the past by some solar analysts as overly conservative on capital spending.

First Solar also recently put out a press release about additional orders in Europe, without specifying clients. It was the type of press release more often associated with aggressive Chinese solar companies.

The selloff really isn't a surprise given the run-up this year in Chinese solar stocks, and in particular JA Solar (up 43%), LDK Solar (up 60%) and ReneSola (up 150%), a few examples of the outperformers among Chinese solar.

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