Tickers in this Article: FSLR, TAN, ENER, SPWRA
The solar stocks have really been under pressure recently and may be vulnerable to even further downside. This sector has historically been one of the more volatile groups in the markets, and 2010 has proved to be no different. Currently many stocks in this sector have broken under key support levels and have been underperforming relative to the broad market.

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The Claymore/MAV Global Solar Energy Index ETF (NYSE:TAN) can be looked at as a proxy for this sector. It has been trading in a broad range for several months traveling from the $8 level to near $11.50. It tested the upper end of the channel in January but quickly failed the breakout attempt and reversed all the way to the bottom of the channel. Volume was higher on the drop, and it is currently testing a breakdown from the channel. This level has held on prior drops, so it needs to be watched closely.

Source: StockCharts.com

First Solar, Inc. (Nasdaq:FSLR) is the largest component in the TAN ETF and the current price action will have a lot to do with whether TAN breaks down or not. FSLR is currently in the midst of its own breakdown and recently fell under some key support levels. FSLR had been attempting to base in a very wide range over the past few months, holding support above the $110 level several times. FSLR traded in a volatile fashion as it tested the lower end of the range and eventually fell under the base. FSLR is in danger of a full-fledged breakdown and could drag much of the sector down with it if it continues to drop. (For related reading, check out Trade Broken Trendlines Without Going Broke.)

Source: StockCharts.com

Energy Conversion Devices, Inc. (Nasdaq:ENER) is another solar stock that recently broke under its base. ENER has been one of the weakest stocks in the group, and is already well below its prior base. One key level to watch is the $10 area for overhead resistance. There are many shareholders who are underwater on this stock, and this level will almost certainly bring in some sellers.

Source: StockCharts.com

SunPower Corporation (Nasdaq:SPWRA) also recently broke under a support level. SPWRA has traded in very wide swings over the past few months, and is trading near the lower end of its range. The overall action has been bearish as SPWRA broke under a choppy base in December on a high volume gap, followed by a weak consolidation for the next few months. SPWRA is close to all-time lows, which would put the majority of long-term investors underwater. This usually translates into overhead supply that is difficult to overcome on rally attempts.

Source: StockCharts.com

Bottom Line
Despite some periods of sharp rallies, it's clear that the solar group has generally underperformed the markets for several months. Several members in this group are trading under key support and are vulnerable to selling pressure on a rally attempt. With the volatile nature of this sector, it is quite possible for a rally that would test these levels for selling pressure in the near term. Despite the idea that this sector would benefit with all the attention on alternative energy by the current administration, the bottom line is it hasn't translated to great stock performance. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.

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