Solar companies have been trading within one of the strongest market segments over the past 18 months. Given the recent market sell-off, prices of key solar-related assets have moved below influential levels of support such as multi-year trendlines. Based on the charts discussed in this article, it appears as though the uptrend has technically reversed, and many active traders are now calling for a move lower over the coming weeks or months. (For related reading, check out: Pros and Cons of Solar Energy.)
When it comes to gaining exposure to the solar sector, most retail traders turn to the Guggenheim Solar ETF (TAN). In case you aren't familiar, the companies that the fund is composed of span solar power equipment producers and suppliers of materials and services to solar equipment producers. In short, the ETF provides direct exposure to companies that derive a significant portion of their business from solar power installation, integration or finance, as well as companies that specialize in selling electricity derived from solar power.
Taking a look at the chart, you can see that the price has recently moved below the key support of an ascending trendline. This move is significant from a technical perspective because this level has historically been able to prop up the price on attempted pullbacks. Now that the price has moved below, traders will expect the role of support to reverse and become resistance on attempted bounces, likely standing in the way of a major move higher. (For further reading, check out: Top 3 Solar Stocks as of February 2018.)
Active traders who choose to trade a sector that is in hot demand tend to take a long-term view to keep a gauge on long-term trends. Weekly charts are often turned to as the tool of choice in these cases and are used to measure long-term trends since they help reduce noise and give a more accurate reading of the underlying momentum. Taking a look at the chart of First Solar, which is one of the top holdings of the TAN ETF, you can see that the price closed below the support of a weekly trendline, which confirms the breakdown shown on the daily chart above. Active traders will likely place their sell orders as close to the trendline as possible in an attempt to maximize their risk/reward. Stop-losses will likely be placed above either the trendline or the 2018 highs near $75, depending on risk tolerance. (For more, check out: How To Profit From Solar Energy.)
Another solar-related company that has seen its shares move below a key level of support is Solar Edge Technologies. Taking a look at the weekly chart below, you can see that the breakdown marks the first time since the uptrend began in early 2017 that the price has closed below. This bearish price action suggests that the uptrend has reversed and that continued selling pressure is likely in the cards. Bullish traders will likely want to remain on the sidelines until key indicators start to show signs of strength again. (For more, see: Why You Should Invest In Green Energy Right Now.)
The Bottom Line
Companies from across the solar sector have been darlings of Wall Street in recent years, but the recent close below key support levels is suggesting that the trend could be over and that a pullback could be in the cards. Active traders will likely want to keep an eye on the weekly charts of those mentioned above in order to keep a firm handle on the long-term trend. (For more, see: The Current State of the Solar Energy Industry.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.