Solar Sector Makes Its Way Back into the Light

Over the last few days, I have received bullish signals on three of the biggest operators in the solar sector. These bullish signals coincide with the sharp jump in oil over the last few days. When oil jumps, investors start looking for alternative energy sources again because the production costs for some of the alternative sources is relatively high, so if oil is cheap the incentive to think about alternatives isn’t there. Once the price of oil jumps above $70 a barrel, investors start thinking about the alternatives to oil, and solar is usually one of the first ones considered.

That being said, First Solar (FSLR), Suntech Power (STP) and SunPower (SPWRA) have all three made their way onto a bullish scan that I run every night. This scan looks at several technical factors and ideally finds quick trades that last a few days to a few weeks but generate big moves. While the three companies aren’t necessarily competitors of one another, they are all three competing for investment money within the solar sector and they are representative of the overall view of the solar energy industry.

Any of these three will benefit from higher oil prices as consumers and investors alike start looking for alternative energy sources. Personally, I think Suntech has the most upside potential as it is not as overly loved as First Solar and SunPower. STP has far less institutional ownership and analysts have the fewest buy ratings on STP than the other two. This leaves plenty of room for upgrades.

Looking at the chart for Suntech Power, there are several factors that led to my bullish stance on the stock. The first item that stands out is the upwardly sloped trend channel and the stock is sitting right on the bottom rail of the channel. The second factor is the oversold status the stock reached on the daily stochastics. The third factor is the crossover of the %K above the %D within the stochastics. As you can see on the chart, the last few times these bullish crossovers have occurred, the stock has had a nice rally over the following weeks.

click to enlarge

If the stock takes the same path it has taken on the last two bullish stochastics crossovers, you can expect to rise approximately 50 percent over the next three or four weeks.

Comments

[tessant:]

rick,
i had a question for you regarding this article...please email me sweitzman at gmail. thanks!

Aug 24 12:01 PM

[J N King:]

Technically, I don't see the bullishness, especially on FSLR. When FSLR cracked the 50 day SMA a little while ago @ the 150 price area, that, to me, screamed lower prices. I really don't see support for FSLR until around the 100-105 area. Resistance is around 146, based on my work. Check out my comments on this site from early August. I like the company, but the time to buy, IMO, will be in the autumn.

Aug 24 03:39 PM

[jbde:]

While oil prices have risen recently, the solar stocks have declined. The glut of oil is not reflected in the price - YET.

Solar stocks still face the reality of lack of enough financing and the removal of subsidies.

I agree on STP, but also CSIQ and YGE are the best indicators.
I disagree regarding FSLR as they are facing a floor in the cost curve for thinfilm whereas the wafer module makers continue to see cost reduction.

With oil at resistance, I would be careful of even STP breaking the trendline you show - today could be crucial, and so far looks to be a solar bounce. But the big drop in China [5% at worse, 2.6% on close] portends end of stimulus in China. The Baltic Dry Index continues to fall meaning there is much less shipping activity of goods into and out of China.

Our markets quitely gave up their gains yesterday. Expect a mild Bernanke bounce and we will see if the next wave of selling is met with buying - at some point it will not be once the little bit of money moving into mutual funds stops.

Aug 25 09:16 AM

[Chad Brown:]

Out of curiosity, I went back and checked how this investment recommendation worked. The answer is it was a failure. To 11/25/09, STP is flat and the other two are down. Not only did STP fail to make the 50% upside move that this author predicted, but it did a little worse than FSLR and SPWRA, at least until about early November 2009. Looking at the very short-term as this author was doing, all three solar names fell sharply by Sept 1, 2009. I have never been a technical analysis fan, but every now and again I do a test to see if I might be missing something.

Nov 30 04:30 PM