VanEck Solar Energy ETF (KWT)

[frenchee]

TUESDAY, SEPTEMBER 2, 2008
GETTING TECHNICAL



The Light Shines on Solar-Energy Stocks
By MICHAEL KAHN

Despite an energy sell-off, stocks in this alternative-energy niche are firming up quite nicely.


ON A DAY WHEN OIL PRICES plummeted and energy stocks of every ilk tumbled, it seems beyond contrarian to write about positive prospects in solar-energy shares. But when we look at price performance versus the broad market and even versus oil and gas stocks, we see an industry group that should be considered.

To be sure, solar energy stocks took a beating at the open Tuesday and several in this small group have damaged chart patterns. Considering that companies here are still new on the scene this should not be a surprise. But for every stock with a bad chart we can find one with a good one and that means opportunity once the energy markets stabilize a bit.

Solar energy companies develop and market products that turn sunlight into electric power. In an environment when oil prices today are still 14% higher than where when the year started and nearly double where they were at the start of 2007, the recent decline in energy prices must be put into context. Alternative energy remains a hot topic.

Indeed, money has been made in this industry and a ranking analysis run on High Growth Stock Investor software puts solar energy stocks in the top decile of all stocks in terms of earnings growth. Taking the strongest of these stocks and putting them to the technical test turns up a nice list of candidates to consider.

For example, Sunpower Corp. (ticker: SPWR), which was a hot ticket last year in a bubbly run that saw it quadruple before tumbling back to Earth, has spent the year in a trading range


This range has served to heal the stock and allow prices to move back to the more sustainable bullish trend that was already in place since 2006 ---before the bulls stampeded too far, too fast.

The trading range is bound on top by a small zone between 97 and 99. What makes this technically better is that once prices reached this ceiling in August they did not immediately decline as they did on previous occasions. This tells us that demand was able to absorb most of the supply thrown at it – a bullish sign.

The buy signal only comes when demand swells anew and we can tell when that happens when prices move over 97-99 with increased trading volume.

Another bit of bullish evidence can be found in volume traded Tuesday as prices fell. Despite a rather sizable 5% decline by mid-day, volume was running below its 10-day average. Selling was not that urgent.

Another stock with a nice looking chart is that of China-based LDK Solar (LDK). It has been in a general upward trajectory since March and has moved above resistance set by its May high of 47.81

What makes this stock look good is that it has already proven that it can rally in good market times and bad. We also know that at a minimum bargain hunters were active as it traded well off its intraday low Tuesday.

Making it look even better is that since its March low, trading has been consistently more active on days when the bulls were in charge than when the bears took over. In other words, the desire to buy, while not quite a stampede, was nonetheless significant. Call it rising demand, inflow of money or just buying pressure but the bottom line is that the bulls like this stock more than the bears do not like it.

Just to round out the analysis, I want to show what a solar stock with a good fundamental story but a bad chart looks like. Evergreen Solar (ESLR) has an 89 out of 100 earnings growth ranking according to HGSI. But the stock got hurt badly on Tuesday's sector decline


Technically, it is trading down towards the lower border of its 2008 trading range and is below its major 50- and 200-day moving averages. It also sports rather weak momentum indicators so it really has not shown the same ability to rally as some of its peers. That is the mark of a stock to be avoided for the time being.

Again, shining a positive light on an energy sector on a day when oil prices plummet seems a bit too optimistic. But when everyone thinks that a sector is doomed, that's exactly the right time for contrarians to take note -- just as long as they do some homework.