First, a word of warning: For those of you who think that long-term investing in stocks means holding a position for 24 hours, this column is not for you.
But for those of you who believe, as I do, that the real money on Wall Street is made by being on the right side of a major move that lasts for months or even years, I invite you to take a step back and consider the longer-term technical (chart) picture of some of the leading solar energy stocks.
When you look at solar stocks from a longer-term perspective you get a far different impression than you would if you were thinking about this sector in terms of the current political climate, in which politicians bought and paid for by the fossil fuel industries are running around pointing at every snow storm as evidence that climate change is a myth.
We all know the negatives that are swirling around renewable energy and solar in particular. In addition to the Republican takeover of the House of Representatives, budget constraints here at home and also in Europe are raising concerns that government incentives to encourage the development and use of renewable energy are vulnerable.
But the negatives are out there for all to see and for some reason renewable energy stocks, and solar stocks in particular, have not only stopped falling, they have sketched out what to me are unmistakable long-term base patterns on their charts.
In my January 31, 2011 column here on Seeking Alpha, I speculated on one reason why renewable energy ETFs such as KWT, TAN, ICLN, GEX and others have been performing better than one might expect: That the debate over renewables is shifting from a climate change issue to a national security issue.
The column describes how the U.S. Department of Defense has embarked on a major commitment to utilize renewable energy to reduce its dependence on fossil fuels. Since its writing, the British Ministry of Defence has also announced plans to utilize solar and wind energy to power its military bases on the front lines in Afghanistan. The British military is also attempting to solve the problem associated with vulnerability of its fuel convoys. And several days after that early February announcement, Senior British Royal Navy Officer Rear Admiral Neil Morisettis said that the British military it is working with private industry to develop new ways of increasing energy efficiency and reducing the military's dependence on fossil fuels.
This bodes well for a small company I mentioned in my January 31, 2011 column, WindTamer Corporation (WNDT.OB), which has already delivered a mobile "Renewable Energy Trailer" that generates and stores wind and solar power to the U.S. Army.
The Long-Term Charts Are Saying That The Outlook For Solar Stocks Is Bullish
The essence of chart analysis is that the when a stock's price action is sending a message that appears to be contrary to the prevailing conventional wisdom, it should cause you to intellectually challenge the consensus. Everybody "knows" that the political and governmental budgetary winds are blowing against renewable energy -- yet most of the clean energy ETF's and most of the leading solar stocks look like they've bottomed and have either broken out or are going to break out of long-term bases. To a pure chart analyst, it's not necessary to know why a chart is sending a bullish signal. But in the case of the renewable energy sector, I am betting that it has to do with the national security advantages of lessening our reliance on fossil fuels and the leadership of the U.S. military (and now the British military) in developing renewable energy products to make this happen.
That being said, here is what I see in the longer-term (4-year) charts of some of the widely-followed solar stocks, in no particular order.
FIRST SOLAR (FSLR) -$166.11: After peaking above $300 a share in early 2008, FSLR fell to the $90 area in late 2008 and has spent the past two years sketching out what appears to be a major base pattern. FSLR tested its $90-$100 bottom area several times in 2009-2010 and held every time in the face of a severe worldwide recession, fears of cutbacks in government subsidies and a negative political climate towards alternative energy. The recent move above $150 is a significant breakout and strongly suggests that FSLR has completed a long-term base and has already begun a new major uptrend. I think when you look at FSLR's chart a year from now you will see that all of the price action between November 2009 and early 2011 between roughly $100 and $150 was a completed base that served as the launching pad for a move back into the low-200's or higher.
LDK SOLAR (LDK) - $12.92: LDK peaked in the mid-70's in late 2007, then plunged to the $4 area by early 2009. All of the price action since then is between roughly $5 and $15, as wide a range as that seems when you look at it on a short-term basis, it can be viewed as the makings of a long-term base. The ideal place to buy LDK would be on dips back towards support in the low-10's, but you may not get the opportunity. A clear breakout over $15 would complete the nearly 2 1/2-year base pattern and could support a move up towards LDK's first significant longer-term resistance area; around $25.
SOLAR FUN (SOLF) - $8.79: SOLF peaked near $40 in early 2008 and plunged to near $2 by early 2009. SOLF looks like it broke out of an imporant base crossing the $8 area back in July 2010, getting as high as $13.48 before falling back towards its breakout area again. Classic chart analysis suggests that a pullback towards the original breakout level presents an excellent entry point, which is close to where SOLF sits right now. SOLF should have good support in the $8-$8.50 area.
SUNPOWER (SPWRA) -$16.04 -SunPower peaked above $160 in late 2007 and had plunged to the $10 area by mid-2010. Since then the stock has sketched out a very good-looking base between roughly $10 and $15. The recent move above $15 is a breakout from that base and a clear buy signal, and should support a move to the $19-$20 area initially, which is where SPWRA will encounter its first significant long-term resistance.
JA SOLAR HOLDINGS (JASO) - $7.73 -JASO peaked near $27 in early 2008 and fell to the $2 area by early 2009. In October 2010, JASO scored an important breakout from a more than 1-year base when it broke above the $6.60-$7.00 resistance area. The breakout carried the stock to around $10, and the subsequent correction has brought JA SOLAR close to what should be a good support area in the $6.50-$7.50 area. JASO looks like it's completed an important long-term base and has the added attraction of being not very far above an important support zone. Next important breakout would be a clear move above $10.
In summary, it's clear that despite a hostile political and economic environment the leading solar energy stocks have bottomed and have already embarked on new long-term uptrends. The news developments that will explain this seeming contradiction will, as usual, come along later on.
Disclosure: Long WNDT