Crude oil has seen a surge the past few days following the unrest in Egypt and now Libya. One reason for the spike is the fear of a disruption to oil supplies, especially if the success of the Egyptians in ousting their government spurs other Middle Easterners to attempt the same. While many oil service stocks surged along with crude, alternative energy stocks succumbed to the selling pressure in the general markets and have been following the indexes lower. This is a good sector to monitor as it is usually highly correlated to the price of crude. With a barrel of oil once again going for over $100, it's possible that solar stocks will start seeing interest again soon. (For background reading, see Spotlight On The Solar Industry.)
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Beyond being a sympathy play, the solar stocks have already been showing strength for a few weeks and the recent market weakness may be presenting an opportunity to buy them back near support. First Solar (Nasdaq:FSLR), for instance, broke out of a base in January once it cleared approximately $151.50. After a quick test of this level, FSLR surged to more than $175 per share. It has been pulling back with the markets but remains above its prior base and may find support near $160 and its 20-day moving average. The more important level to watch is that breakout area near $151.50. A drop below this level may imply a breakout failure and a possible top in the stock. (For more, see The Anatomy Of Trading Breakouts.)
SunPower Corporation (Nasdaq:SPWRA) is another solar stock that recently cleared a base. SPWRA had been trading in a fairly tight base from mid September through February. It cleared the top of this base near $15 in February and rallied nearly 25% in a few sessions. It is starting to see some profit-taking coinciding with market weakness. This is certainly not a stock worth chasing, but it could be a great candidate to watch in the coming days for a possible buying opportunity. One level to watch would be near $16, which coincides with the stock's 20-day moving average and was also the first level to force SPWRA to pause on its breakout.
Canadian Solar (Nasdaq:CSIQ ) is also worth monitoring, although it is still below some recent highs. It has been consolidating since September as well and was able to recently clear a trendline connecting its recent rally attempts. While this is a positive step, CSIQ still has formidable resistance near $17. A break above this level would certainly be worth investigating, but another scenario that would be worth monitoring is a tight consolidation near $15 cementing that level as support. This would allow traders to attempt a pre-breakout trade with tight risk management. (For more, see Track Stock Prices With Trendlines.)
Trina Solar Limited (NYSE:TSL) is another solar stock still mired in its base. TSL has been trading in a sideways trading range of almost $10 with a bottom just above $22 and a top near $31. However, there is another important level to watch; TSL has been holding above $26 on several occasions despite spending two months under this level late in 2010. This may be the level to watch on any weakness; the $31 level is the area to watch for a breakout.
The Bottom Line
The solar stocks may not be in a buying position yet, but they are certainly a group worth monitoring, especially if the price of crude oil continues to rise. Like any stocks, they are often subject to declines with general market weakness, despite an underlying catalyst to drive up prices. However, if oil remains near current levels and the markets stabilize, solar is one group that could lead the way higher. (For more, see Solar Stocks To Watch In 2011.)
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.