First Solar, Inc. (FSLR) shares rallied to an eight-month high this week, continuing a seven-week test at major resistance centered at $40. More importantly, committed buyers are building sector exposure, generating a bullish wave that could catch fire in coming weeks. Early-bird market players could benefit from this developing uptrend with low-risk positions that offer rapid appreciation. (See also: First Solar Stock Testing Heavy Resistance.)
Solar stocks have struggled since 2015, held down by shrinking government subsidies and cheap fossil fuel alternatives. It was expected that Donald Trump's election would intensify selling pressure, but the group bottomed out a few weeks later and has attracted a generous supply of capital since that time. This welcome development bodes well for higher prices in the solar sector, even though crude oil prices have dropped back into the mid-$40s.
Three mid-tier plays offer interesting alternatives to sector blue chips that include First Solar, but longer-term positions will require patience because it takes time for new uptrends to gather strength. In addition, rising energy complex volatility could undermine buying pressure in the coming weeks, requiring aggressive risk management to turn speculative fervor into steady profits. (For more, see: Solar Energy to Cost Less Than Coal by 2021.)
Canadian Solar Inc. (CSIQ) tested the 2008 high at $51.80 in 2014 and sold off in a channeled decline that yielded two additional tests into May 2015. Bears then took firm control, dumping the stock through two-year support in a steep decline that bottomed out at a two-year low in the single digits right after the November election. Canadian Solar stock has spent the past seven months completing a triangular basing pattern with resistance in the mid-teens.
The stock returned to base resistance in mid-June and has built a small pennant that could now support a breakout into the mid-$20s. On-balance volume (OBV) entered an accumulation phase in March 2017, but the shallow trajectory tells us that public traders still haven't jumped on board the developing uptrend. This is good news that should allow quiet position building at favorable entry prices. (See also: 3 Bullish Chart Patterns for Solar Stocks.)
Vivint Solar, Inc. (VSLR) came public near $17 in October 2014 and eased into a trading range between $7.50 and $16, ahead of a February 2016 breakdown that dropped the stock to an all-time low at $2.16. A May bounce to $4.06 established the boundaries of a basing pattern that defined price action into June 2017, when the stock broke out in a vertical impulse that is now consolidating just below $6.00.
OBV has lifted to an all-time high, even though the price is still trading more than 12 points below the 2014 all-time high. This bullish divergence should underpin the upside in coming months, but traders should expect the progress to slow or stall when the stock price reaches $7.50, the underside of the trading range broken in early 2016. As a result, a more profitable entry could come on a pullback that tests new support at the 200-day exponential moving average (EMA) near $3.50. (For more, check out: Solar Stocks Boom on Trump's 'Solar Wall'.)
JinkoSolar Holding Co., Ltd. (JKS) entered a shallow downtrend in the second half of 2015 after failing to break out above the 2010 high in the lower $40s. The decline undercut support at $16 in September 2016, generating a selling climax that posted a three-year low at $12.72 in November. The stock has gained ground since that time and is now trading less than two points below a lower highs trendline in place since 2014.
A trendline breakout could take time because accumulation has a long way to go to recoup sponsorship lost during the multi-year decline. As a result, it makes sense to expect at least one major reversal off that resistance level before the stock generates the buying power needed for a rally that completes a 100% round trip into the late 2015 high at $29.50. Meanwhile, pullbacks into 50- and 200-day EMA support in the upper teens should offer low-risk buying opportunities. (See also: JinkoSolar to Supply Solar Modules for Fuji Electric Project.)
The Bottom Line
Speculators and bottom fishers have rediscovered the solar sector, lifting the group off multi-year lows that coincided with the presidential election. The momentum crowd could now join these folks, generating healthy recovery rallies that continue into the fourth quarter. (For related reading, see: Top 3 Solar Stocks as of July 2017.)
<Disclosure: The author held no positions in aforementioned stocks at the time of publication.>