Tallying the Damage in Solar Stocks and Sifting for Opportunity

Thursday’s stock market sell-off could finally be the start of the sharp Fall correction I have speculated about in various forms for months now. The extent of the technical damage and the heavy distribution of stock certainly seem to have put a ceiling on stock prices for now. Solar stocks were heavily hit as speculative stocks tend to experience aggressive selling in this kind of market backdrop. For some solar stocks, Thursday was just a continuation of on-going weakness, and for others, Thursday marked a definitive change in the chart technicals. It is interesting to observe how many solar stocks remain stuck within multi-month trading ranges.

The following list tallies some of the technical damage and identifies my latest thoughts on any potential opportunities. Again, the increasing risk of a sharp sell-off in the stock market is the biggest risk factor for any potential longs. (In the interest of space and time, I only posted one chart. Stock are listed in descending order of Thursday’s price performance).

1. Ja Solar Holdings (JASO): Down 20% in the past week and now toward the bottom of a 6-month trading range. A trading buy on a strong bounce in the stock market.
2. Yingli Green Energy Holdings (YGE): Down 17% in the past 2 weeks, but still in the middle of a 4-month trading range.
3. SunPower Corporation (SWPRa): Down 14% in the past 2 weeks and sitting right on top of the convergence of the 50-day moving average (DMA) and the 200 DMA. I am still waiting for a move back toward the bottom of the 7-month trading range before buying again. I may move earlier if the stock market rebounds strongly.
4. Energy Conversion Devices (ENER): Down 19% in two weeks. Without more buy-out rumors, ENER is sure to crack its 52-week lows, now just another 10% drop away. Shorts are sure to press the case here. My most recent calls will most likely go out worthless, and I am not interested (yet) in rolling out a new position for November expiration.
5. Evergreen Solar (ESLR): “Only” down 10% in 2 weeks. ESLR remains the solar stock I love to hate. It is back at the $1.80 level of its secondary offering of stock in late May. I still do not think ESLR is worth any more than $1.80, and it is probably worth a lot less.
6. LDK Solar (LDK): Down 20% since a large 14% one-day spike upward three weeks ago. LDK is at the very bottom of a 5-month trading range that is now looking like a triangle or wedge pattern. This pattern looks ready to break for more significant downside.

   

7. Memc Electronic Material (WFR): Down 17% in the past week. WFR has now done a complete roundtrip from its earnings warning in early September that sparked a sharp relief rally (partially powered by buyout rumors and speculation). My latest calls will most likely expire worthless, and I am looking to re-establish my overall bearish position on WFR. WFR is at the bottom of a 5-month trading range, but it has a lot of other points of potential support given the stock has meandered and gone nowhere for 12 months now.
8. ReneSola (SOL): What can I say? The disaster continues! I have probably written enough about SOL for now. Just note that Thursday’s 6% drop brings it a hair within breaking the July lows and killing hope for a near-term resumption of the sharp March to June move upward. All those recent put buyers in SOL may yet be rewarded.
9. First Solar (FSLR): Down “only” 9% in the past week. FSLR stopped right at support at the 50DMA. After the market closed, S&P announced FSLR will replace Wyeth (WYE) in the S&P 500. FSLR popped as much as 8% on the news before fading all the way back to $149 and a 3% gain in the after-hours trading session. I wanted to recommend fading the trigger reaction to the news, but it seems the fade has already happened. Stocks that get added to major indices typically move higher as traders move to get ahead of the forced buying that comes from index-following fund managers who will need to buy FSLR’s stock when it is added to the index. This move is also typically temporary. The catch here for FSLR is that if the S&P 500 continues downward, it just inherited one more short-term drag on its stock. I continue to trade around my core short position. I am doing more trading than I would like as FSLR bounces around multiple support and resistance levels. Ironically enough, I sold a put into Thursday’s selling and missed a trigger for a call by mere pennies as FSLR stopped just short of the 50 DMA.
10. China Sunergy (CSUN): Down 10% in the last week. Stock continues to drift in a 4-month trading range.
11. Canadian Solar (CSIQ): Down 12% in the last week. While CSIQ has gone nowhere the past 2 months, its general uptrend from the March lows remains intact as it continues to follow its 50DMA higher.
12. Suntech Power Holdings (STP): Down 19% in the last week. I stated in an earlier post that I finally started scaling into a long-term position in STP. The stock is now at the bottom of a 6-month trading range. While tempting, I am not adding to my small position just yet. Hapoalim Securities analyst Gordon L. Johnson II reiterated his negative views on the solar sector in Barron’s last weekend and knocked STP again. My main concern is his claim that STP uses balance sheet trickery to goose earnings and revenues by funding a customer of its panels through off-balance sheet transactions. This has me more wary on STP, and I may go right back to treating it as a trading vehicle instead of an investment one if the stock stumbles too much in the near future.
13. GT Solar International (SOLR): Still stuck in an 8-month trading range.
14. Solarfun Power Holdings (SOLF): Down 22% in the last week. Still wandering in a 5-month trading range.
15. Trina Solar (TSL): TSL is the most impressive solar stock in the group from a technical perspective, and I wish I owned it. Although it is down 11% from last week’s challenge of its 52-week highs (most of that downside coming on Thursday’s 8% drop), I am still going to wait until TSL’s next earnings call before deciding whether to finally take the plunge.

Overall, most of these stocks remain stuck in trading ranges and thus in neutral trading territory. I will be watching the entire list more closely as the Fall trading season unfolds. I am not interested in shorting any stock other than FSLR, and I am focused on buying opportunities in SPWRa and TSL.

Be careful out there!

Full disclosure: long TAN, STP, ENER calls, SOL calls, WFR calls, SSO puts; net short FSLR