A huge solar rally flamed out at the end of 2007, just as high hopes for the industry hit a fevered peak. A steep decline took firm control in the following year, even though skyrocketing oil prices made solar cells an economic energy alternative. Sector malaise has continued into 2009, with this speculative group lagging the broad market advance by a wide margin.
Solar stocks have perked up in recent weeks, raising hopes that the long downtrend has finally come to an end. If so, this sector might enjoy outsized gains in 2010. However, it's hard to visualize a resurgent solar group without leadership from
, its undisputed leader. Unfortunately, that issue has a long way to go before it re-establishes a bullish tone.
The sector giant topped out at $317 in May 2008 and dropped more than 200 points before bottoming out in November of that year. The subsequent bounce reached $207 in May and yielded to a steep decline that nearly cut the stock's price in half by November. It turned higher in the last month and is now filling the huge October gap.
It's easy to get excited by the recent bounce off the low, but this issue is still trading 12 points under its 200-day moving average. That resistance level marks the long-term line in the sand between bulls and bears, so this issue remains firmly entrenched in a major downtrend. That characterization won't change until its rallies over $150.
Yes, there's an opportunity down the road, because this issue could eventually recover and retest the lofty levels posted in 2008, but right now it remains a trading dog that should be avoided by all serious investors. So, until the technicals improve substantially, it's best to avoid the stock and look elsewhere for sector exposure.
Claymore/MAC Global Sector Energy ETF
is the easiest way to analyze, and to play, the broad solar sector. The fund came public in April 2008, at the worst possible time for the industry, and topped out just one month later. The bear market carried the instrument down to $4.65 in March of this year, where it began a steady recovery that topped out in June at $11.67.
Price has dropped into a descending triangle pattern since that time, chopping sideways with resistance at the 200-day moving average. It has moved to the top of its trading range in the last week and is once again challenging resistance. Notably, the fund has a 9.66% weighting in First Solar, which isn't big enough to undermine any broad sector recovery.
This pattern has bearish dynamics that favor an eventual breakdown through triangle support (lower blue line) near $8. On the flip side, a buying spike above the July and September highs at $10.75 (red line) would trigger two bullish technical signals. First, it would negate the descending triangle, and second, it would mark a breakout over the 200-day moving average.
In turn, that would signal the start of a longer-term uptrend that might yield a price double in 2010. However, there's no advantage in taking an early position, in anticipation of that breakout. Instead, stand aside, pull up a chair and stalk the pattern with a sharp focus on price action if and when the current uptick nears $10.75.
While the sector leader and main exchange-traded fund demand a cautious approach, a handful of solar stocks are leading the pack, with relatively bullish patterns and higher prices. Investors and traders should concentrate on these more attractive issues if they don't want to wait for the big boys to finally wake up and lead the bull charge.
Yingli Green Energy Holding
is a Chinese solar stock that bottomed out in November 2008 at $2.50 and mounted the 200-day moving average in May. It tagged $16.35 a few weeks later and then dropped into a broad ascending triangle pattern. Price closed near resistance on Tuesday and could be setting up for a major breakout.
The stock has posted a powerful run off the October low at $11.17, but I wouldn't buy it yet, because it's pushing right up against resistance. Instead, wait for a final pullback that drops price to around $14.50 (green line). That downswing would offer a lower-risk entry for a continued uptrend that might reach the mid-$20s in the first half of 2010.
bottomed out in March, after a 34-point decline. It topped out in June and pulled back into November, carving out a choppy seesaw pattern. The stock just rallied over three-month resistance and cleared the 200-day moving average. It's headed into a test of the August high at $8.30, with a bigger challenge sitting above that level, at $9.
That price marks the neckline of a multiyear head-and-shoulders pattern that was broken in the 2008 crash. The stock was turned away from that resistance level in November 2008 and again in June of this year. The third attempt could be the charm and set up a major breakout that lifts the stock back into double digits in 2010.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley was long SOLF, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product from TheStreet.com that outlines his charts and analysis. Farley has also been featured in
. He has written two books:
, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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