NEW YORK (

TheStreet

) -- Solar sector short interest was lower in July than at any time in 2010. For many of the solar industry short favorites, short interest in July was at its lowest level in more than a year. The decline in solar sector shorting in the month of July was revealed by the Nsadaq in its latest bi-weekly short interest report. It's not a surprise that solar sector shorting reached an annual low in July, but it doesn't mean short interest in solar hasn't already started going right back up where it usually resides.

The solar sector rallied broadly in July after the euro crash of June caused the entire sector to plummet. As the euro rebounded, and the solar sector demand and pricing scenario for the second half of 2010 looked much more confident than previously anticipated, solar stocks rallied for more or less the entire month of July. The month-long rally would have caused, in the least, some short covering.

At a larger level, the decline in solar shorting can probably be attributed to the fact that the sector was headed into earnings season, and the numbers for solar stocks were expected to be roundly impressive. Solar companies were set up for earnings rallies on the numbers, though in actuality, it didn't turn out that way with many of the usual solar earnings season rally stocks. A lack of the proverbial

clean

earnings from the solar sector, and uncertainty about 2011, kept solar stocks from rallying even when printed second-quarter earnings numbers were good.

Take

JA Solar

(JASO)

, which last quarter had among the biggest earnings rally. Short interest on JA Solar shares decreased the most of any short interest in the solar sector in July, down from more than 15.5 million shares shorted to 10 million shares shorted. It was the lowest level of short interest in JA Solar shares since January.

It's easy to understand why the shorts would have abandoned JA Solar before its earnings. Earlier in the year, people were expecting the business environment to deteriorate, and because JA Solar sits in the middle of the solar supply chain, its pricing power would be squeezed. However, the back half of year turned out to be much stronger than people thought it would be, with a bottleneck in the solar cell market alleviating pressure on cell pricing.

JA Solar didn't deliver the earnings rally that the market may have been expecting, though, with one-time charges marring what otherwise may have been a clean earnings.

Trina Solar

(TSL)

also experienced its lowest level of shorting since January. Trina reports on August 24.

Yingli Green Energy

(YGE)

, which will report its earnings on August 19, saw the second largest short interest decrease in July. Yingli short interest declined from just under 8 million shares to 4.9 million shares. The drop in Yingli short positions wasn't just sequentially big, but it was the first time in 2010 that short interest in Yingi has been at a level less than 7 million shares.

Only one solar company saw its short interest rise in July, embattled U.S. solar company

Evergreen Solar

( ESLR), and even in the case of Evergreen Solar, it was a marginal increase in short interest ahead of its earnings, still hovering above the 27 million share mark.

Several solar stocks experienced their lowest short interest in more than a year, including

Suntech Power

(STP)

,

ReneSola

(SOL) - Get Report

,

China Sunergy

(CSUN)

and

Energy Conversion Devices

( ENER).

Both

First Solar

(FSLR) - Get Report

and

MEMC Electronic Materials

(WFR)

had short interest declines of roughly two million shares in July. For First Solar, it was the lowest short interest since October 2009.

Of course, the backward-looking decline in solar shorts doesn't mean that uncertainty about the solar sector outlook has changed for good. "Everyone knew the third-quarter numbers would be good and the Street would have to raise numbers, and you don't want to be short into a potential earnings run up," said Wells Fargo Securities analyst Sam Dubinsky. With the euro suddenly declining again -- it was down to $1.27 on Friday morning -- the subsidy cuts in Europe still the biggest event on the 2011 horizon, and the potential for a typical seasonal decline in Europe in the winter months, those short positions may go right back up, the Wells Fargo analyst said.

Here is the latest solar sector short interest data from the Nasdaq: First Solar(least short interest since Oct. 2009)July 30: 10.7 million shares short July 15: 12.5 million shares short Energy Conversion Devices (least short interest in a year)July 30: 10.8 million shares short July 15: 11.4 million shares short Evergreen Solar(short interest up)July 30: 27.2 million shares short July 15: 27.1 million shares short MEMC Electronic Materials (least short interest since end of April) July 30: 22.3 million shares short July 15: 24.6 million shares short SunPowerJuly 30: 16.2 million shares short July 15: 17.6 million shares short JA Solar(lowest short interest since January)July 30: 10.1 million shares short July 15: 15.5 million shares short Trina Solar(lowest short interest since January)July 30: 4.3 million shares short July 15: 5.1 million shares short

Canadian Solar(least short interest since end of April)July 30: 2.8 million shares short July 15: 3.4 million shares short Yingli Green Energy(first time under 7 million shorts in a year)July 30: 4.9 million shares short July 15: 7.9 million shares short Solarfun PowerJuly 30: 3.7 million shares short July 15: 3.73 million shares short ReneSola(lowest short interest in more than a year)July 30: 1.1 million shares short July 15: 1.7 million shares short Suntech Power(lowest short interest, and first time under 14 million shares, in more than a year)July 30: 13.2 million shares short July 15: 14 million shares short China Sunergy(lowest short interest, and first time under 2 million shares, in more than a year)July 30: 1.8 million shares short July 15: 2.3 million shares short

-- Written by Eric Rosenbaum from New York.

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