Updated with Mizuho analyst comments, an more on LDK Solar and Suntech Power)
NEW YORK ( TheStreet) -- Solar stocks, as big a market dog as there was in 2011, are suddenly back in favor. The broad market rally to start 2012 had led to some gains in solar from the lows at which the stocks ended trading last year, but Wednesday morning was a monster solar rally on big volume.
First Solar (FSLR - Get Report) touched $42 a share for the first time in a month, while Trina Solar (TSL - Get Report) was up 24% and tore past its average daily volume within a half hour of the market open.
The likely catalyst was a report from Deutsche Bank saying that solar stocks may have fallen too low given a reasonable demand forecast and a lessening inventory overhang. Any one positive trend plays out against bearish expectations, and solar stocks have been overly discounted, Deutsche Bank said in the report.Deutsche Bank analyst Vishal Shah wrote, "Recent conversations indicate investor sentiment is still very low and short interest near record levels. Given the rising 1H12 demand prospects in Europe/US, we now believe the recent trend of encouraging poly pricing data points could likely continue for the next month and as such, likely drive solar stocks higher. Although we expect solar companies to report losses during the upcoming Q4 earnings reports, we note that street estimates are already low and confirmation of the above trends could likely drive upside sentiment surprise." He added, "Our checks indicate that inventory levels across the supply chain are now at record low levels and we believe record December month shipments is likely to create a sense of rush among installers in 1H12 before another anticipated 15% subsidy cut from July." If you don't trust Deutsche Bank, you may want to take note of the fact that the biggest solar bear on Wall Street, Axiom Capital's Gordon Johnson,