Time for a Winter TAN?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie for ETF Digest

NEW YORK (ETF Digest) -- TAN, the Guggenheim Solar ETF, may not be the first thing on your mind as you were driving to work this morning listening to the weather report predicting 3" of snow. But maybe it should be.

In 2008, when oil broke the $100/bbl threshold, solar energy stocks soared. First Solar, Inc (FSLR) was the darling of media as it rocketed from $40 to $300. Previously unheard of solar stocks doubled and tripled in a matter of months. Solar was "the way of the future" and traders took the ride like the dot com hysteria. Naturally, when oil went off the cliff to $40/bbl in the crash, solar stocks tumbled. Solar took another blow recently being entangled in political scandal.

Oil dropped below the $100/bbl mark yesterday when Europe announced a delay of the Iran oil embargo. That media event quickly dissipated and oil resumed its climb and is on the cusp of regaining its $100/bbl price.

The truth is, solar energy⿿s not only the way of the future--it is the way now. Renewable energy constitutes 7% of energy usage in the US. Solar comprises 97% of "green" energy generation. China, with millions of new users being added to the grid every year, plans to increase their solar grid eighteen-fold by 2020. Solar technology is now in its third generation with Amorphous Silicon production vastly increasing the capacity of solar cells.

Guggenheim Solar (TAN) is an excellent choice for exposure to this fast growing industry.

 

Solar behemoth, First Solar (FSLR), plunged from $300 down to $30 taking TAN down with it. The final plunge came in mid December flushing out the last of the weak hands. Through January we've seen accumulation of FSLR on conviction volume to it's current price just below $40. From mid 2009 through mid 2011, FSLR found its range from $100 to $150. This 11% holding in TAN has room to move.

 

GCL Poly is China's largest solar manufacturer and its energy generation tentacles extend throughout China's massive energy production. Trina Solar (TSL) is another major solar technology company in China. TSL found its normal price in the $25-$30 range from '07 though '10 with the exception of the '09 sell-off from which it fully recovered. TSL is currently trading below $10.

This may be a pretty ugly looking chart, but take a closer look.

Price has skipped along the $2.50 area three times. This is a bottoming process. September selling flushed out all the sellers. For the first time in over a year, TAN has made a higher high -- and on conviction volume. The MACD indicator shows us this ETF bottomed out in October and has been getting legs ever since (although, not reflected in the price). The heavy volume price move in January pushed the MACD above the mid line and the histogram shows a steady climb in positive territory. Our +/- directional indicator shows us the first decisive trend reversal on the chart happening this month.

TAN may only have a 52-week high of $8.47. However, through 2009, it's price hovered around $10 and it's May '08 highs were over $30.

$100+ crude is the expected norm for 2012. Analysts predict we could see the '08 highs of $140 again and possibly higher. A move in TAN from $3 to $10 is not an unrealistic expectation in 2012.

Solar stocks haven't caught the attention of the talking heads yet. When they do, it'll send solar to the moon. TAN under $3 looks like a deal.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.