Solar Power

It’s been a hot week in the solar sector following the partnership of First Solar and SunPower Corporation. As investors continue to digest the news, both names saw significant pops in their stock price and have given a boost to solar names across the board.

Investors looking for exposure to solar names have two solid options. The Guggenheim Solar ETF (TAN) and the Market Vectors Solar ETF (KWT). Both products have similar holdings and track rather closely, but for charting purposes, we will take a look at TAN, the larger of the two products.

2013 was quite the door busting year for solar energy, with TAN posting a mind-blowing 127% return on the year.  Despite hitting a peak in 2014, last year was uneventful, barely changing on the year. Thus far, 2015 is shaping up nicely for solar names (+15%) but the charts are saying the party could be short lived. Since peaking in March of 2014, prices have developed a subsequent pattern of lower highs. Recent momentum has driven TAN back above its 50 and 200-day moving averages but prices are about to bump heads with a major trend-line ($40). To add salt to the wound, on a relative strength basis versus the S&P 500, TAN is also hitting a major resistance line.

One important characteristic is the latest short interest number in TAN. As of February 13th, nearly 3.7M shares of TAN were held short, which translates to an extremely high short interest ratio of 19.1. If prices in TAN can break through that significant resistance line, a short squeeze could be in order, boosting prices higher. $40 is an important inflection point here and shouldn’t be ignored by investors. 

Tom PsarofagisComment