Solar Cycles and Stocks: The Sun Also Rises

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Includes: HQCL, LDK, SOL, SPWR, STP, TSL, WEST, YGE
by: John Gilluly

I first became interested in solar cycles and stocks when I learned that the legendary commodities trader, William Gann, used solar returns to anticipate his direction of commodities prices. 

Solar eclipses have also had a marked circumstantial place in financial history because they seem to coincide with the rapid transformation of investor psychology from bullishness to paranoia, or conversely, from pessimism to hope.

What are the odds that eight of the greatest market crashes in history would fall within a time period of six days before - to three days after - a full moon that occurs within six weeks of a solar eclipse? Less than 1/100,000.  Yet that is what happened recently at the capitulation low of the financials on July 15th, just 3 days before the full moon.

Each month the lunar cycle begins with a new moon (that is sometimes a partial eclipse, and on rare occasions, a total solar eclipse, like the one we had on August 1st, 2008. What begins in total darkness when the moon is hidden within the light of the sun, grows ever brighter till it shines as the full moon.

There was a University of Michigan Business School study that examined 100 years of the stock market trends as they related to the lunar phases.

Returns in the 15 days around New Moon dates are about double the returns in the 15 days around full moon dates. This pattern of returns is pervasive: We find it for all major U.S stock indexes over the past 100 years…

As I watched the recent nascent tech rally build up steam off the July lows it was hard not to notice the malaise around solar stocks. Although their earnings reporting period had been one of the best ever, with doubling, tripling, even quadrupling of revenues and profits, the stocks sold off after every report, some of them dramatically so. It didn’t make sense.

There has been a bearish mindset which has cast a pall of gloom over solar for 8 months:

Bear Case (1): The price of poly will plummet; too much supply will come onstream in 2009-2010, and demand will not be able to absorb it. ASPs will fall dramatically, cutting into profits, and the solar cell makers will battle it out for a limited number of customers while contending with oversupply, an inventory correction, and too much debt (from over-expanding capex). A close parallel to this case would be the current situation among the semiconductor memory makers (Micron Technology (NASDAQ:MU), SanDisk Corporation (SNDK)).

Bear case (2): The price of poly will not fall that much in 2009, and supplies will continue to be tight (the way they have been for three years). This will negatively affect ASPS as cell makers compete for customers while dealing with their high supply costs and debt levels.

Yet you rarely hear the following: so many companies (170) are actively engaged in bringing new poly to the market that by 2010 the cost of raw poly and wafers may drop as much as 80% from today’s levels; the increased competition for customers and the subsequent drop in ASPs will make solar 40% more affordable to new customers (increasing overall demand) while cells gain another 20%+ efficiency through technical innovation.

I did a recent study of state initiatives, and they are all equally balanced between helping homeowners to install affordable solar [PV] systems while supporting large scale commercial and utility projects for use at peak power times during the day (thin film).

This nonsense about residential solar companies like Akeena (AKNS) not having a future is untrue. The only thing Akeena needs is a turn in the CA real estate market (2009-2010), the mandating of solar BIPV (built-in roofing photovoltaics) for new home construction in the sun belt, and a lowering of the total cost of ownership [TCO] for homeowners who desire a solar system, one that is cash-flow positive from the day they install it. 

The upcoming drop in solar ASPs is going to do for solar what chip technologies did for the computer in 1995-99, spawn a robust adoption cycle. We are about 3-6 months away from a U.S. congress passing a stable and lasting Investment Tax Credit [ITC] for solar energy development

Anyone who has flown over thousands of square miles of warehouse roofs or driven for days through sun baked landscapes in the Great American Desert, knows we are sitting on a solar gold mine if we’ll just tap into it. Thermal solar, parabolic solar, thin film, PV – they all have a place at the table.

Which brings me back to my opening paragraph about eclipses. The total solar eclipse on August 1, 2008 was in Leo, the sign of the sun. The ancients agreed that eclipses heralded a new event, sometimes a dramatically new beginning, which would last for an extended period of time, and begin to show its formation sometime within the first two weeks following the solar eclipse.

Because solar stocks are “ruled” by the sun, and this eclipse took place in the sign of the sun, I was very eager to see if something would develop for the solar sector. But I saw no positive movement in solar stocks for 10 days. Not even a budge off the multi-month lows. Then three days before the full moon, Sunpower (NASDAQ:SPWR) suddenly announces the largest U.S. contract ever, equal to all the solar installed in the U.S. in 2007 and a fire was lit under the sector.

If my premise is correct, and the current nascent rally in solar holds, we may be witnessing the beginning of the long sought-for bull market in Alternative Energy, the game changer that leads the market from “stuff” to renewable energy tech.  You can see the breakouts to the upside in the charts of LDK Solar (NYSE:LDK), Solarfun Power (SOLF), ReneSola (NYSE:SOL) and the ripeness of charts like Suntech Power (NYSE:STP), Trina Solar (NYSE:TSL) and Yingli Green Energy (NYSE:YGE).

In terms of solar, the future is half full, not half empty. If – like John Templeton said – we should strive to buy stocks at the point of maximum pessimism (even though we don’t know when that would be) solar stocks surely seem apropos in early August, 2008.  Also on the horizon is the eventual advent of Nanosolar, the private thin-film solar company with deep pockets ($) and a technology that can make miles of solar film per hour (in 10’ wide sheets like carpet) for 50 cents/watt (estimate).

The move from fossil fuels towards renewable electric energies in transportation, home heating, lighting and cooling will be one of the greatest paradigm shifts ever, and I believe we still remain in the top of the first inning.

Disclosure: I am long AKNS, SOL, and YGE.

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