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2 Big Falling Knives in the Energy Market

Stocks in this article: SLB BHI HAL FSLR

Halliburton said at the beginning of 2012 that margins would be down but wouldn't collapse. Not good enough as far as keeping the knives from falling, as the latest similar headlines show us.

Halliburton is one of the best of these companies and eventually the equipment is going to be put to work, whether it is after costly transition to more economic drilling basins in the U.S. or internationally, where it is allocating more capital, noted Phil Weiss, analyst at Argus Research.

"Why do they keep going down on these headlines? Everyone expected it. I still think the market is pricing in a doomsday scenario I don't see, but the oil service stocks may very well be the best buys nobody wants to buy for some time to come," Weiss said.

Meantime, the recent flood of headlines in solar show the extent to which a short-term trading mentality makes this sector a difficult one to ever say the knives have stopped falling. On Wednesday, First Solar (FSLR - Get Report) hit the latest in a series of recent 52-week lows below the $25 mark.

Last week, the U.S. solar sector received a minor negative when tariffs to be levied on Chinese solar module makers came in below expectations. Chinese solar shares rallied and First Solar sold off. Chinese solar shares promptly gave back all of those gains within 24 hours.

This week began with the entire solar sector getting a bit of minor positive news as Germany cemented a solar subsidy reduction plan slightly more positive than the original proposal. By Wednesday, though, reports that Italy would more or less kill its solar support, sent all the solar stocks back into a tailspin.

Reuters quoted anonymous sources in Italy on solar subsidy reductions that will reduce incentives by 50% and curtail overall government spending on solar.

Gordon Johnson of Axiom Capital, considered the dean of the solar bears on Wall Street, wrote on Tuesday afternoon, "Following our review of the attached 2 drafts of proposed next-generation Conto Energia 5 (CE5) Italian solar feed-in-tariff (FiT) legislation, we believe that solar installations in Italy are likely poised for a 'Spain-like' collapse." Spain was the original boom to bust solar subsidy market to collapse which destroyed the economics of the sector and stocks in 2008.

Anonymous sources and bearish outlooks are nothing new in solar, and as Jeff Osborne, Stifel analyst noted, "It is important to highlight that while media has reported expectations for approval of the new Italian rules by mid-April, the solar subsidy change process that we saw in early 2011 was drawn out and delayed with initial deadlines missed, and with plenty of media noise and uncertainty that led to PV project financing grinding to a halt."

So noise makes for at least a volatile, if not also falling knife, trade in solar.

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