Solar Stocks: Cutting Back on Three Names 25 comments
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I am cutting back on three names in the solar basket as they all have the identical chart - broken down stocks that just surged 10%+ to the first resistance area, the 20 day moving average or close to it.
Yingli Green Energy (YGE) was the only one of the three to push through. Instead of focusing on any one of these very volatile stocks, I've changed tactics the past eight weeks, and created a basket and consider them to be "one stock" especially those of the Chinese variety because that seems to be how the market treats them, despite their obvious differences. I have not touched Energy Conversion Devices (ENER) because its one of the few stocks in this market holding its 50 day moving average through thick and thin.
For Trina Solar (TSL), Canadian Solar (CSIQ), and Yingli Green Energy (YGE) the plan is identical - either buy back on a retrace to lower levels and or pay up if this is indeed a "real move" over and above the 50 day moving average. I'll post one chart - but they all look very similar.
Crossing north of the 200 day moving average would signal real strength but for most of these stocks, that level is located in a different universe. All this weakness must be due to all their exposure to subprime mortgages - that's the thing with this market - 100% growth at 15 PE ratios don't even protect you - every stock has subprime exposure I guess.
As a "basket of 3" I've cut these from 4.0% to 3.1% of fund. Despite what I assume must be breathless excitement on CNBC all we've done this week is get back to where we closed Friday in the markets - one huge day down, one huge day up ... and that pretty much summarizes the random walk down Wall Street of late. Nothing changed in 24 hours except Merrill signaled to the rest of the financial system you have some huge write downs coming. And that is "good news" because it's now clear that the end of the write downs are here (for the 98th time). No conviction, no direction.
Until we get north of S&P 1275 we are going nowhere fast. I continue to build cash in every stock that rallies that shows the "broken" formation above. One day these stocks will continue to chug upward and going to cash will be the "wrong" decision, but when a real sustained move happens, we'll miss the first part and catch the rest of the move.
As I keep saying, until a trend forms that lasts for more than 3-4 days this is a market only for daytraders. I do expect Thursday to bring "excitement" as I am sure the Gross Domestic Number will be "better than expected" and then Friday is the random wild card that is the useless labor report.
Long all names mentioned in fund; long Trina Solar in personal account
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This article has 25 comments:
when did this update occur - yesterday? do you have link?
FSLR reports today est. .58
"Spanish Proposal Update: The Spanish national energy commission (CNE) today announced that the there would be no cap to installations in Q408, although the new 33c/kWh tariffs would be applicable. The CNE proposed that the new cap of 300MW would be effective from January 2009 (250MW for ground-mounted and 50MW for roof-mounted versus earlier proposal of 200MW roof-top and 100MW ground-mounted). CNE's response and preliminary checks with contacts today suggests that there could be some room for further negotiation and the 300MW cap may not be a done deal. The CNE proposal would be sent to the government this week (last week before the summer holidays). "
...and of course he is joking about the subprime.
In reality, while a rising tide may lift most ships, the falling tide will ground all ships.
Take FSLR, Lets say they double earnings by 2010. Or better yet, earnings are projected to grow to $5.00, (I saw this type of pie in the sky hype during the Internet Bubble), that puts the current P/E into the mid-fifty area. Show me any analyst who can project earnings that far out with accuracy.
All stocks have subprime connections since they will be the ones that will be sold to atone for the sins in the Financial Sector.
Let me give you an example, Major US city and a major earthquake in that city. All types of insurers drop like rocks...the stock market drops like a rock also. The Insurerers will dump assets to raise capital for perceived liabilities. They will all try to get as much as they can. The only asset class that may buck the trend might be those which would be involved in the reconstruction. Otherwise, it would be like 9/11 revisited but much larger.
There is no safe sector in a Bear Market. Come the fourth qtr., Mutual funds will either have sold or will begin selling in earnest to provide a better picture of their performance.
The above is also speculation but speculation based on what has happened in real Bear Markets in the past.
Good luck to you all, the signs are well lite, ignor them at your own peril.
Yesterday could well have been the typical break to the top that starts a multi-day trend, and that often happens at earnings season (remember ENER, CSIQ, SOL last quarter).
I do agree that the stock market overall may be in for more pain over the next few months, and it may well be smart to take profits as earnings season ends, but for whatever it is worth, I think selling now is a mistake.
I think that whatever Spain does, demand will continue increasing due to Eastern Europe (Czech Republic, etc) which has its own "OPEC" issues with the former Russia which uses oil and gas as a political weapon, China, France, Luxembourg, Japan, China and yes, even the good ole US of A.
Jack Yetiv
Jack
I'd personally like to thank jack for his recommendations on tsl, I'm a believer in tsl now. I took some of my jaso winnings from two months ago and caught tsl on the way down at 33.60 ( felt like a fool a day later), but have since doubled down with a basis of 28.50 and feel confident coming into earnings thanks to jack.
As a sirius speculator yesterday was rough, but, holding tsl and stp helped keep me from writing a sad country song about crying in my beer.
But the Longer Term pattern, 1 year or more won't be broken even if it drops below 200. All you have to decide is whether you have the guts to hold on if it drops about 20% from here.
Rules of thumb, are you willing to buy at the level its at? If not, then why are you holding on? If you bought at higher levels and are losing money, it drops 15%, get out. If you can't admit to making a mistake, you shouldn't be in the market in the first place.
If you have no doubts, you should be selling puts and pocketing the money. If you have doubts, but want to hold on to your position anyway, buy some puts as insurance.
Prudent Man Theory. BTW, Google with its vaunted pie in the sky analysts sang the same song last year.
Those that bought around 700 are not very happy with it below 500. GOOG's earnings are way up but its PE has contracted substancially.
The way I see it, FSLR is suffering from 2 factors. First, people are waiting for Earnings that will sustain present price levels. Second, NEW entries are showing up in droves in the Solar stock Sector. Meanwhile, the same amount of money is sloshing about, Competition.
Jack, I agree solar technicals mean nothing. I sold these late yesterday (Seeking Alpha posted it today) on the spike.
People confuse a specific strategy with a bear call or bull call on a sector. When stocks break down this bad I like to sell when they bounce and then re-assess. More than happy to purchase them a bit higher. Other people say they "buy on weakness" but that is easy to say. People said buy Trina when it fell from $52 to $45. Then $42. Then $38. Then $35. Then $33. Then $30. Then $28. Then $26
Then they say gotcha! I told you to buy on weakness.
it is very easy to propose a "theory"
I like the chart on ENER right now and away we go. Its a bear market. With earnings some of these stocks will be up 20% in an instant and some down 20%, and someone will come and say how stupid to sell the one up 20%, and down 20%. Now if someone could just tell me today which one of these names will be the one up 20% off earnings and which down? That would be helpful. Instead of telling me post earnings.
Last, I do believe Trina has subprime exposure - there can be no other explanation for a stock that trades at 50% value of its peers ;)
Later folks. I'm a bull on the sector, I will be for years. That doesn't mean they trade in a vacuum and/or I did not sell at the bottom. Its part of a greater strategy of conserving capital. Gamblers will "buy on the way down". Of course they will nail the bottom, or so they will say. I'm just not that talented to nail the bottoms like the peanut gallery ;)
And economically viable?
www.prosefights.org/pn...
I think this will turn out to be the catalyst that will light the fire under the solars (of course, yesterday was a pretty good day as well). I think TSL and CSIQ will reach the $40's and SOL will hit low to mid-20's in the next 3 weeks.
Remember, European (especially German and Spanish) solar demand cranked up this quarter due to uncertainty regarding future feed-in tariffs, so I think you will see that most solars will report very well this quarter.
This will be especially true if oil remains in the $120's or higher, although there has been some decoupling between oil and solars (as there should be, of course, as noted above).
Jack
I have some unrealized losses to make up in this group. FSLR continues to exceed my expectations. Tip of the hat to those guys.
Jack
Not so much. :)
FSLR 1 year ago 100 - now 300 (overvalued all the way?)
TSL 1 year 60 - now 30 (undervalued all the way?)
etc etc.
I await the day polysili is $125-$150 to see how the dynamics in the industry change.
And Solars react more to energy prices than I like.
Q2 est EPS has gone up a lot from $0.71 -> $0.80, 2008 from $3.14 to $3.24, 2009 from $4.09 -> $4.35 by analysts.
At $28, it is grossly undervalued.
LDK Q2 est EPS 0.42, price 33
STP Q2 est EPS 0.33, price 33
CSIQ Q2 est EPS 0.45, price 28
Not to mention US solar stocks.
I suppose there is a point, in that a recession here would cause an export-related depression over there, but to simply say that the China market is exposed to the subprime meltdown is a little weak.
I think the main explanation is an overselling of the China market. You had stocks like ACH go up 500% in the course of a year for no particular reason, and then have it come down 80% because it wasn't projected to grow 50% per year anymore. Seems these solar stocks are victims of this same phenomenon (except they are actually still projected to grow upwards of 100% per year).
Remember that people in China were lining up for hours to get a chance to open a brokerage account not too long ago.
Maybe they're stampeding out at the smell of weakness. Time for a good contrarian bet if you ask me. ACH is selling for P/E 7, with a 3% dividend, almost half the cost of AA. YGE is selling for a PEG of way less than 1. I'm sure there are plenty more opportunites out there.