Solars Testing Critical Support Levels

By Joey Fundora | November 01, 2010 AAA

The solar stocks have been experiencing some distribution lately despite the general markets remaining near their recent highs. Some stocks in this sector have started to break down and are testing some important support levels. This is a clear divergence from the price action in the general markets and provides traders with valuable information that money is likely rotating away from this group in the near term. Whether this group finds support at these levels or not, it is likely that this sector will underperform in the near future. (For background reading, see Spotlight On The Solar Industry.)
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First Solar (Nasdaq:FSLR) is likely the most widely followed stock in this group, and the recent price action is a little troubling for current investors. FSLR fell apart when it tested the $150 level back in May, dropping all the way to $100 per share a few weeks later. It then spent the next four months on a tedious climb back up to $150. After briefly climbing above this level, FSLR once again failed to break out and instead gapped lower on high volume. It also fell under a rising trendline that was marking its prior trading channel and also broke under its last pivot low in October. These are all warning signals that sellers are starting to overwhelm buyers in FSLR. (For more, see Trading Failed Breaks.)

Source: StockCharts.com

Solarfun Power Holdings Co. (Nasdaq:SOLF) is another solar stock that has been under pressure recently, even as the markets trade near highs. SOLF was actually looking pretty good about a month ago, as it attempted to have a secondary breakout after clearing its base in July. However, SOLF quickly reversed after clearing $13. Volume was also higher than average near the top of the range, which is hinting at distribution. SOLF should be watched here as a break below current support near $10 could put SOLF back into its prior base.

Source: StockCharts.com


Trina Solar LTD
(NYSE:TSL) has been one of the better performing solar stocks over the past two years, but it's starting to see some signs of distribution. TSL has very strong resistance in the low $30s, as it has marked several tops over its brief lifetime. TSL failed on a few occasions near this area back in 2007, and then again in early 2010. After correcting over the first half of this year, TSL managed to trade back to this level in October. However, the initial thrust into this resistance area was met with a high volume reversal. TSL is also sitting near the bottom of its recent trading range and just broke under a trendline that had been framing its recent trading channel. If TSL falls back under $26, it could see renewed selling pressure.

Source: StockCharts.com

JinkoSolar Holding Company (NYSE:JKS) is the one solar that continues to sport a very healthy looking chart pattern, but it has experienced some possible distribution. JKS has had quite a run over the past few months as it traded from single digits to over $30 in just four months. JKS had been consolidating the sharp rally from September through late October before a gap higher on November 1. While the gap held above the base, JKS did pull back from its highs. Traders should monitor JKS to see if it can continue to consolidate above the prior base before pushing higher. If JKS fails to hold above the breakout area near $32.50, it could quickly come back down into its prior base. (For more, see The Anatomy Of Trading Breakouts.)

Source: StockCharts.com

While the many solars have not technically broken down, they have been experiencing selling at a time when the markets have been pushing higher. This is not healthy price action, and could be hinting at lower prices in the future. Of course these stocks could easily find support at their current levels, but it may take much more time before they are ready to resume moving higher. On the contrary, if the markets pull back from these levels, these stocks will likely have trouble holding on to current support. If these levels are broken, the implications are for much lower prices, so traders should remain vigilant when it comes to this group.

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

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