Solar stocks have rebounded sharply in December after experiencing a sharp downturn earlier this month. The Guggenheim Solar ETF (TAN) is down just 0.08% over the past month, and the First Trust Global Wind Energy ETF (FAN) has recovered all of its losses and posted a 1.67% gain over the past month. Solar stocks, such as First Solar Solar, Inc. (FSLR) and SunPower Corporation (SPWR), have posted especially strong recoveries and could break out to fresh highs.

The Senate version of the tax bill's Base Erosion Anti-Abuse Tax (BEAT) – released on Dec. 4, 2017 – was designed to make it more difficult for businesses to evade taxes, but it could also make the Production Tax Credit for wind energy and the Investment Tax Credit for solar projects harder to monetize. However, the final tax bill eliminated these provisions that would have negatively affected renewable energy, and the sector recovered its losses. (See also: Clean Energy Stocks Gain Despite Trump Tax Stance.)

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

From a technical standpoint, the benchmark solar ETF rebounded from lower trendline resistance at around $23.00 earlier this month to levels at which it had been trading prior to the Dec. 4 tax bill announcement. The relative strength index (RSI) is neutral with a reading of 54.45, suggesting that there is room for a further rally, while the moving average convergence divergence (MACD) is on the verge of a bullish crossover.

Traders should watch for an extended breakout from the $24.50 levels that the ETF has been trading at over the past few sessions to retest prior highs at around $25.50. If the ETF fails to break out, traders should watch for support at trendline and 50-day moving average levels of around $23.84. A breakdown from these levels, however, could point to a longer-term retracement to the 200-day moving average at $20.63. (For more, see: Chart Patterns Suggest Solar Stocks Are About to Shine.)

Chart courtesy of StockCharts.com. The author holds no position in the securities mentioned except through passively managed index funds.

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