Several solar stocks have had very strong upward moves since the middleof May. Most of these moves are continuations of the strong upwardtrends from the March lows. Over the past three days, these same stockshave sold off on decreasing volume toward important levels of support.
The three-day correction has come just as Evergreen Solar(ESLR) finally joined the solar rally party. When the worst stock(company) in a speculative sector joins a rally late, the move is oftena sign that the sector’s rally is coming to some kind of conclusion.The traders and investors who arrive late to the party often look forthe laggards under the assumption that these stocks will soon followthe leaders. The fortunate buyers thus pay a "discount" admission intothe theme park. But these discounts typically come just near closingtime; the last buyers have finally arrived.
Struggling ESLR announced a much needed common stock offeringon May 20th that sent the stock plummeting 19% the next day. For almostthree weeks it churned in a tight range before surging 29% on June 10and another 11% the following day. Even with the selling the past twodays in ESLR, it remains 32% above the $1.80 price of the stockoffering. My guess is that it will return to $1.80 in short order:nothing has happened in the past week to suggest that ESLR is worthmore than the valuation the company gave itself through the stockoffering.
Now that I have provided an ESLR "tale of caution," here arethe solar charts that are of most interest to me from the long side inthe near-term: Ja Solar Holdings (JASO), LDK Solar (LDK), Suntech Power(STP), and Yingli Green Energy Holdings (YGE). (Note well that giventhe strong runs to date, caution is required no matter what ESLR isdoing!)
JASO had a strong breakout above the 200DMA on very highvolume. Strong up volume also occurred at two earlier criticaljunctures in JASO’s rally, providing confirmation of the momentum. Thepullback over the last three days has occurred on decreasing volume,ending with a small hammer patternconveniently hovering right above the 200DMA. Look for a confirmationmove above the hammer pattern which could send JASO well past the Junehighs. The 200DMA provides the stop level.
Recently, LDK has gone nearly parabolic on extremely strongvolume (and no company-related news that I could find). The last 3 dayshave wiped out the last leg of the 3-day upward burst. With 200DMAresistance looming overhead, LDK is probably a hot potato you do notwant to hold too much longer, at least not without somecompany-specific catalyst. There is a "reasonable" chance LDKexperienced a "blow-off" top. However, a bounce from Monday’s highcould provide one more decent trading opportunity. Stop below Monday’slow.
YGE has had one of the most consistent rallies of amongst allthe solar stocks. The 20DMA has provided stiff support almost theentire way up these past three months. Look for this support to holdone more time as YGE formed a hammer pattern right at those levels onMonday. Note well that unlike the other trading candidates here, thevolume on YGE’s pullback is equivalent to the buying volume thatpreceeded it. So, I suspect that if support fails here, YGE could fallvery quickly to its 50DMA at around $10/share.
Finally, STP remains my favorite short-term trading solarstock. This latest leg of its rally has been more subtle than its othermore speculative cousins. With the high volume jump over the 200DMA,STP became buyable on a correction like the current pullback. The 50DMAand 200DMA are converging to form likely support. A stop below thoselevels makes sense here.