Alternative energy investments have finally captured the attention of investors in recent weeks. One group that is of specific interest this week is solar because bullish chart patterns, which we will discuss in this article, suggest that bullish momentum could just be getting started and that these could be the early days of a significant uptrend. (For a quick refresher, check out: The Economics of Solar Power.)

Guggenheim Solar ETF (TAN)

As most investors will attest, the solar sector has not been a friendly ground for investment over the past several years, as most companies have been trading within defined downtrends. In many cases, investors look to use exchange-traded funds (ETFs) such as the Guggenheim Solar ETF for gaining exposure since many of the companies are relatively unknown and can be a challenge to research. In a basket of solar-related assets, the company-specific risk is mitigated, and the diversification of the fund offers investors one of the purest plays for gaining from significant shifts in sentiment.

On the chart below, you'll notice that the 200-day moving average has historically acted as a strong level of resistance (shown by the red arrow), which is exactly how technical traders would expect prices to behave near this type of important technical level. What makes this chart of specific interest now is that the recent surge above the 200-day moving average has resulted in a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle). This long-term technical buy sign is known as the golden cross and is regarded as marking the beginning of a major uptrend. Since the price has run up so quickly in recent weeks, it would be understandable that some traders will wait for a pullback toward the 50-day average before entering a position. (See also: Top 5 Alternative Energy ETFs for 2017.)

Technical chart showing the performance of the Guggenheim Solar ETF (TAN)

First Solar, Inc. (FSLR)

Taking a look at the top holdings of the TAN ETF, you'll find that the largest holding is First Solar with a weighting of 8.77%. Generally speaking, it is strategic to analyze the top holdings of sector-related ETFs since they are often regarded as among the market leaders. As you'll notice in the chart below, the price has recently broken above the 200-day moving average and then again above the influential dotted trendline. The break above key resistance levels combined with the bullish crossover between the 50-day and 200-day moving averages suggests that this could be the ideal time for long-term bulls to take a position. Stop-loss orders will likely be set directly below the 200-day moving average to protect against any sudden sell-offs. (For more, see: Is First Solar a Great Deal or a Trap?)

Technical chart showing the performance of First Solar, Inc. (FSLR) stock

Canadian Solar Inc. (CSIQ)

Another major holding of the TAN ETF that looks poised for a long-term move higher is Canadian Solar. As you can see below, the price has again been able to surpass extremely strong levels of resistance as well as the long-term crossover between the 50-day and 200-day moving averages. Active traders will use these technical levels to determine the placement of their buy and stop orders. (For more, see: Top 3 Solar Stocks for 2017.)

Technical chart showing the performance of Canadian Solar Inc. (CSIQ) stock

The Bottom Line

Solar stocks have underperformed for much of the past couple of years, but recent price action is changing this story. Strong moves higher on the charts shown above have resulted in bullish crossovers between the long-term moving averages. These golden crosses suggest that we could be in the early days of a major uptrend in solar stocks. (For more, see: Spotlight on the Solar Industry.)

Charts courtesy of StockCharts.com. At the time of publication, the author held no positions in the securities mentioned.

 

 

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