Heightened volatility in the financial markets has many traders worrying about where to allocate their capital. Many longer-term traders are even looking to the exits so that they can lock in multi-year gains in hopes that they can put their money back to work at levels with a better risk-to-reward ratio.
While moving to the sidelines may sound like the logical move, others are looking to the bullish chart patterns forming in the solar energy industry. In the paragraphs below, we'll take a closer look at the charts and try to determine how traders will be positioning themselves over the weeks and months ahead.
Invesco Solar ETF (TAN)
One of the most popular exchange-traded products that is utilized by active traders for tracking the solar energy industry is the Invesco Solar ETF (TAN). Fundamentally, the fund comprises 22 holdings from manufacturing to distribution, and as you can see from the chart below, the stock price has recently fallen from the high near $42.50 and has since bounced off of the support of its 50-day moving average.
The recent pullback has been in line with the broader market volatility, and recent price action suggests that the price is headed higher again. From a longer-term perspective, followers of technical analysis will most likely hold a bullish outlook on the solar industry until the price of the TAN ETF falls below either the combined support of the dotted trendline and the 50-day moving average, or the 200-day moving average at $30.09, depending on risk tolerance.
SolarEdge Technologies, Inc. (SEDG)
One popular method for discovering companies within niche market segments such as solar is for traders to analyze the top holdings of funds such as TAN. In the case of SolarEdge Technologies, Inc. (SEDG), which ranks in second position in the TAN portfolio, you can see that the price has been trading within an extremely strong uptrend.
The dotted trendlines on the chart represents key levels of resistance, which you'll find have been very influential over the direction of the stock. The breakout above the psychological $100 level sparked a sharp rally, which was to be expected. The recent pullback toward the short-term support level at $110 held its ground, and the subsequent bounce indicates that the bulls are still in control of the momentum and suggests that now could be a good time to buy.
Sunrun Inc. (RUN)
Another top holding of the TAN ETF that could be of specific interest to active traders is Sunrun Inc. (RUN). As you can see from the chart below, the price broke above the $17 mark in January and experienced a sharp move higher.
The bullish momentum has triggered a crossover between the 50-day and 200-day moving averages, which is a buy signal used by many active traders to mark the beginning of a long-term move higher. The retracement toward the nearby support suggests that traders will be looking for an opportunity to re-enter their positions. From a risk-management perspective, stop-loss orders will most likely be placed below $16.70 in case of a more significant shift in underlying fundamentals.
The Bottom Line
Many traders are worried about the impact of the coronavirus, and many are flocking to the safety of cash or fixed-income securities. While flocking to safety may feel like the most logical move, the charts within the solar industry are suggesting that niche segments such as this one could be worth a closer look.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.