Industry leader First Solar, Inc. (FSLR) has rallied more than 10-points in the last week, attracting little financial media interest while signaling the likely end to the long and brutal solar downtrend. Still, the beaten down sector has a long way to go to attract the buying interest needed to sustain an uptrend so it’s best to expect two sided action into the foreseeable future.

Rival SunPower, Corp. (SPWR) highlighted this constructive sector action in Wednesday’s pre-market, dropping 8% after downside guidance that expects a sharp revenue decline but then jumping into the green after the opening bell. Numerous components could exhibit similar resilience in coming months, lifting stocks and funds that remain stuck at multi-year lows.

FSLR

First Solar hit an all-time high at $317 in 2008 and plunged to $85 during the bear market. It built a horizontal trading range at that support level into the end of 2011 and broke down, dropping to an all-time low at $11.43 in 2012. A recovery wave into 2014 failed to penetrate new resistance, yielding a secondary range that broke support at $40 in the second half of 2016, dumping the stock to a 4-year low at $25.56 in April 2017.

The most recent decline broke the 2016 low at $28.60 while the May buying wave has remounted that level, setting off a 2B buy signal, denoting the failure of bears to defend new resistance. The rally has now reached the 50-week and 200-day EMAs, an exceptionally a tough price zone that’s stopped prior recovery waves dead in their tracks for the last year. A rally above $36.50 is needed to break this bearish sequence, offering a tailwind for even higher prices.

SPWR

SunPower topped out in November 2007 at an all-time high above $160 and sold off in a multiwave downtrend that ended near $4.00 in 2012. It followed the 98% decline with a recovery wave that barely penetrated the prior range, stalling in the low-40s in 2014. The stock then built a rounded topping pattern into a 2016 breakdown that’s grinding out support about three points above the prior low.

Basing action since the fourth quarter of 2016 has carved resistance at $9.20, with December 2016 and February 2017 bounces running into aggressive selling pressure at that level. The 50-week and 200-day EMAs have declined through 10 at the same time and are now aligned with base resistance, telling observant market players to keep their powder dry until buy signals go off. That will require a rally into double digits that could presage even stronger upside, perhaps filling the August 2016 gap between $11 and $14.

TAN

The Guggenheim Solar ETF (TAN) highlights solar industry apathy, posting steadily falling volume since a 2014 surge. It came public above $250 in April 2008, just ahead of the economic collapse, which dumped the fund more than 200-points into the upper 40s. The subsequent bounce stalled at $117 in June 2009 while a 2010 test at that level got sold aggressively, ahead of a 2011 breakdown that reached an all-time low at $12.60 in 2012.

Lower 2014 and 2015 highs built a secondary top, ahead of a 2016 breakdown that’s continued into the second quarter of 2017. Like FSLR and SPWR, the fund also faces key testing at the 50-week and 200-day EMAs, currently descending from 19. It hit that resistance level dead-on during a February 2017 recovery wave, with a return trip completing a broad base and potential double bottom reversal.

The Bottom Line

Solar stocks are showing signs of life after a long and brutal downtrend. While it’s like to take months or years before the group heads into a sustained uptrend, now is a perfect time to get industry leaders and funds onto watch lists to gauge future trading opportunities.

<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>

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