Solar stocks have begun to experience some cloudy skies following a relatively sunny beginning of the year. Between January 1 and February 27, the Guggenheim Solar ETF (TAN) – which consists of 25 of the largest solar companies – rose more than 15% before falling nearly 8.5% between February 27 and April 4. Many of the largest players in the space – except for Tesla Inc. (TSLA​) – saw shares move significantly lower throughout March.

Analysts believe that solar companies are likely to have a strong first half of the year, but third quarter results could be impacted by China’s cutback in Feed-In-Tariffs set to occur on June 30. The country’s National Energy Administration plans to decrease tariffs by between 23% and 52% in 2017, which could dramatically reduce investment in renewable energies in the world’s largest market for solar and other renewable technologies.

On a technical level, traders may want to watch for some profit-taking on short positions and a potential short-term reversal in the shares of solar companies.

First Solar Inc. (FSLR​) broke down from trend line support on March 19 on strong volume, but shares could be oversold after their dramatic decline. The relative strength index (RSI) stands at an oversold 28.06 while the stock had its strongest bullish day since the breakdown on April 4. Traders may want to watch for a move back up to trend line resistance at around $28.50 and a potential breakout to its pivot point at $30.35 or the 50-day moving average at $32.13.

SunPower Corp. (SPWR​) remains in a similar position after experiencing a breakdown on the same day. Since moving below trend line support at $6.50, the stock has been trading just above the psychologically-important $6.00 level at $6.17 per share. RSI readings are oversold at 36.45 and moving average convergence-divergence readings could see a bullish crossover, which makes the stock worth a look for traders willing to assume a little risk.

In the end, the solar industry may be experiencing some headwinds from China, but the market could be oversold at its current levels following a dramatic reversal. Traders may want to take a second look at the sector as an opportunity for gains on short sellers covering their positions.

Stock charts courtesy of Author may hold positions in stocks mentioned through ETFs and mutual funds.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.