Updated from 4:27 p.m. EDT, May 26

Shares of solar-energy companies rose sharply for a second straight day Wednesday as optimism appeared to flow again into a sector known for its volatility and speculative interest.

On Tuesday,

Yingli Green Energy

(YGE)

received an upgrade from an analyst at Lazard Capital Markets, and

Canadian Solar

(CSIQ) - Get Report

reported a narrower-than-expected loss. Both stocks popped and took the sector higher with them.

Yingli shares jumped as much as 20% yesterday, and have continued to rise since, changing hands in afternoon action Wednesday at $12.26, up 10%, or $1.12, on volume of 8 million shares. Average daily volume is 6 million.

Canadian Solar shares, meanwhile, climbed another 11%, or $1.29, to $12.32, on double the daily average volume.

But some market watchers have suggested that the two-day surge has been at least partly caused by rising oil prices, which almost always sparks interest in alt-energy stocks, and a short-squeeze rally. According to the options newsletter Schaeffer Research, a bearish put/call ratio has afflicted Canadian Solar of late. Short sellers held about 11% of Canadian Solar's float as of April 29 and a whopping 15% of Yingli's float as of the same date.

Lazard's Sanjay Shrestha lifted his rating on Yingli to buy from hold Tuesday morning. He also increased his 2010 revenue forecast for Canadian Solar in a research note issued Wednesday. Even while he praised the long-term growth potential of the company, he cautioned investors about the short term, cutting his 2009 bottom-line forecast on Candian Solar to a loss of 11 cents a share from a loss of 6 cents.

Before the opening bell Tuesday, Canadian Solar reported an adjusted loss of 10 cents a share in the first quarter, narrower than Wall Street's per-share estimates of a 25-cent loss. Though the company also ratcheted down revenue expectations for the rest of the year, it said that shipment volumes rose between March and April, a northward trend that it expects to continue into the second and third quarters.

Shrestha's upgrade of Yingli came on the heels of disappointing first-quarter results from Yingli, released on Friday: its revenue dropped 37% from the year-ago period and its bottom line substantially missed Wall Street estimates.

But Shrestha was looking on the bright side.

"Let's not kid ourselves. Yingli had pretty bad quarter at the end of the day," Shrestha said. "Nonetheless, that's behind us now."

The company, he argued, stands to benefit from the continued decline in prices of polysilicon, one of the chief ingredients in the manufacture of photovoltaic systems. As a result, Yingli has indicated that its margins could improve to 25% by the end of the year, up from the 17% it reported in the just-ended quarter.

Shrestha also cited the Chinese government's huge stimulus package, which will likely throw money at alternative energy, much as the U.S. will do. He put a price target on Yingli stock of $14, which represents a multiple of 10 times the EPS Shrestha is forecasting for Yingli in 2010.

Other solar stocks continued to rally Wednesday.

Suntech Power

(STP)

was up 10.2%,

LDK Solar

(LDK)

had climbed almost 5%,

Solarfun

( SOLF) rose 9%, while

JA Solar

(JASO)

was up 6.5%. Shares of

SunPower

( SPWRA) jumped nearly 5% on the session.

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