Saturday Rock Blog: We Are Young

Disclosure: long SPWR stock and short Jan $9-strike covered calls on the entire position

Bullish Solar ETF Chart (TAN) ~$18 neckline

Disclosure: I am long stock and Oct calls on FSLR, SPWR and JASO.

The Bottom in Solar Shares

Today the long awaited preliminary results of the US Commerce Department's investigation into unfair trade practices by Chinese solar companies were released. While the Commerce Department's investigation hasn't yet concluded, and a decision on the charges of dumping by Chinese solar companies hasn't been made yet, they said today that "countervailable subsidies are financial assistance from foreign governments that benefit the production of goods from foreign companies." You'd think this is a good thing for US solar companies, after all this should boost their margins as they see higher module prices in the US. You might think the beaten down, and heavily shorted, shares of FSLR and SPWR would squeeze on this sort of news. But in fact, just the opposite happened. Shares in Chinese solar companies (eg. STP, JASO, YGE) surged 10-20% on the news today while FSLR languished in the red and SPWR sold off 7.5%. Wall Street was clearly looking for larger tariffs on Chinese modules with one analyst claiming that the 3-5% tariffs are too small to be meanginful. I don't claim to know enough about the economics of solar to know whether 3-5% tarifs will be meaningful fundamentally, but psychologically this feels like a meaningful event. If this means that module prices will rise in the US, then great, anything that can stop the death spiral in solar panel prices is welcome. If US producers see higher contract prices going forward, then that will mean analysts will have to revise their earnings estimates higher, also good. Naysayers will say that this will dampen the US solar growth, but much to the surprise of those who follow the stock prices of US solar companies, the US solar market doubled last year. I find it hard to beleive that a 3-5% tarif on modules from China will significantly dampen growth. I could go on an on about how bullish I am on solar for the long run, but finally things seem to be starting to improve on the shorter term.

Despite the weakness in US solar shares, the solar etf TAN managed a gain today on more than triple the three month average volume. I see this as a sign that the tariff news is seen by the market, on the whole, as good for the solar industry. We can speculate as to why investors are buying or covering, but the price and volume action is how the market speaks. Should the strength continue, solar will have carved out a very solid looking inverse head and shoulders bottom. If the bears want to push their solar shorts further, they'll need to quickly reverse today's action. More later...
Disclosure: I am long FSLR, SPWR and JASO.

Saturday Rock Blog: Get, get, DOWN.

Yes, I've turned bearish! More details to follow... tomorrow.
Disclosure: I am short SPWR, IWM and SWKS with more to come.

Things are looking a lot better

I know a lot of you out there are tempted to sell/short this bear market rally but given the chart above I have to caution against it. Divergences in multiple indicators have been signaling a rally for months and although markets have rallied significantly from their lows I see substantial room to run further in the context of a long term downtrend (the SPX 200 dma is 27% higher). Volume was weak on Friday's new year breakout and because of that I would expect a pullback early next week, but things are coming together for the extended rally I have been anticipating for some time now. The technical picture has improved dramatically with all major averages trading above their 50 dmas which may even start to turn up soon. While the October and November highs could and should provides significant resistance, I'd guess we reach the 200 dma before this bear market rally ends.

One sector that looks particularly good right now is solar energy. This chart is overbought but looks just fantastic. Couple a bottom in energy with a broad stock market rally and the solars will take the lead. After a pullback, perhaps to the 50 dma, I am going to be adding FSLR, SPWRA, JASO and ENER.


Disclosure: I am long DXO and USO calls. I also have calls on JASO, ENER and SPWRA.

Almost a Bottom in Oil

There is still no sign of a bottom on the oil daily chart (see USO below) but the massive falling wedge is reaching it's apex as volume picks up to levels not seen since the top. It won't take much for oil to break out to the upside and when it does the move should be substantial. As for targets, the 50 dma is more than a 50% gain from here and the 200 dma is a staggering 100% gain. With supply getting cut off and demand stimulus, its hard to see crude not moving higher from here. There are early reports that the collapse in gasoline prices is leading to increased demand from drivers and I'd expect to see more of that. If the US dollar weakens that will add fire to fuel.


Looking back at the 2003-2005 price action, $40 looks like it could be an area of significant support for crude. As you may recall, the low on Friday was $40.50, which I expect should be enough to bounce oil out of this wedge. A fellow trader Xerxes had a great idea in the double oil long DXO which has fallen to under $3.0, and I bought a good chunk of it today to add to some USO calls.

By the way, if crude does take off I would think the solars take the lead of any rally in US stocks. So on top of my USO and DXO positions I also have calls on JASO, SPWRA and ENER. Good luck out there!

Opportunities Abound in Solar

JA Solar, a long time favorite, has recovered my line in the sand: IPO support/resistance at $5.5. Things are looking good for JASO, I could see it hitting $12 easily. Beware earnings are coming up on the 12th but I think risk is limited, note the S&P upgrade today:

"“We expect strong earnings growth over the near-term,” he writes, “while the price of the shares has fallen notably based on various concerns such as margin pressure and the potential need for capital for expansion.” He notes that the stock trades for under 4x his 2009 EPS estimate of $1.50 a share. Montevirgen, however, slashed his price target on the stock to $9 from $20."

I'd also note that Sun Power quietly posts blowout results during the market chaos of recent weeks. SPWR is another one of my favorite solar stocks as its the leading producer of Silicon based cells in the US.

I recently posted about FSLR looking great as well.

What I hear many traders talking about right now is the potential for an Obama election to boost certain stocks and solar is cited as a prime cannidate. While I would guess this is already priced into solar stocks, long term Obama seems to be very serious about subsidising solar. Whether or not you agree with the politics of it, US photovoltaic producers could see some greener pastures ahead.

"Finding the new driver of our economy is going to be critical. There is no better potential driver that pervades all aspects of our economy than a new energy economy ... That's going to be my No. 1 priority when I get into office, assuming obviously that we have done enough to just stabilize the immediate economic situation." -Obama

Disclosure: I own JASO and SPWRA calls.

Awesome Examples of Failed Breakdowns

This is the 400th post, hurray! Both of these failed moves came from blowout earnings report and great guidance, I'd encourage you to look into these reports. FSLR and ICE both gaped higher and ran to the highs today on massive volume. In doing so they reversed significant chart breakdowns from the days prior. As I mentioned on Sunday, failed moves lead to fast moves and that's exactly whats going on with these two. Its hard to see these slowing their ascent for a few days. Click on the charts for more details.And by the way, yes, I am now bullish on First Solar. If you recall my multiple bearish posts before about FSLR, I thought it was an over bloated pig at $300 with a 150 PE. I said my target for it was $120 and it went there. Now their PE is a more reasonable ~25 and FSLR does have some good things going for them; Obama's energy policy, residential expansion, lowest cost per watt and they are demonstrating resiliancy in the face of economic hardship. I currently don't own any FSLR but looking to add and I have some JASO and SPWRA calls.

Bullish Cypress Semi (CY) Pattern

Saturday Rock Blog: Sun Power (SPWR) is a Rapper's Delight

And if you liked that, you'll love this.

Solar Squeeze (FSLR, JASO, LDK, SPWR, TSL)

The solar stocks have been on a rampage lately on increasing volume and many of them have massive short positions. The poster child of this rally is First Solar, ticker FSLR (see above), which recently had a big gap up and run on $1.3B in new solar panel orders. FSLR has formed what looks like a short stroke (no pun) on the daily time frame. This is a pattern you see after a big move where a stock consolidates mostly sideways for a week or so before blasting higher again. According to IBD, this pattern provides an "itty bitty opportunity to buy shares."

Since going public last fall the short interest in this stock has steadily risen. Theres no doubt that this will be a great short at some point, but lets wait for signs of a top first and until then the premature shorts will propel this stock higher as they take losses. I am very bullish on this stock above $119.85 (the all time high) which is conveniently just below $120 so this may provide a pause for the inclined to buy $120 calls before they go in the money. This level would then be a nice price to set a stop or for a longer term hold or a trailing 8% stop might be effective given the 8% range in the short stroke.

I'll leave it up to the readers to check out the charts of the other solar stocks like JASO, TSL, LDK and SPWR, but they all look very similar. They are exploding higher as the short interest grows. One stock that for the most part has not joined along that is in this sector is WFR. I have been bearish on WFR for a couple of months now but the chart is starting look good again after a few months of consolidation and base building. If WFR can manage to close above $67.50 things could get interesting. Based on a rough measured rule $85 seem like a good target once WFR starts making new all time highs.


On a few other notes, ICE broke out and looks like an awesome buy at pretty much any price as it marches towards my $210 target. In fact Investors Business Daily recommended ICE as a buy in the weekend edition of the paper. SWKS has earnings after the close on Wednesday and I will probably take some profits (but not all) ahead of that announcement even though I am still very bullish on the stock. AHM might be finding some support at $14 but who knows, that stock is a train wreck. I am also interested in IMB as another mortgage company short (like AHM and PHM). IMB seems to have more downside potential than the other mortgage stocks and the chart is begging to be shorted. Finally, Brian over at Alpha Trends had some interesting short squeeze ideas over the weekend. Check them out.

And don't forget that July options expire on Friday, so deal with your July's if you haven't yet!

Disclosure: I own ICE calls, SWKS calls, AHM puts and IMB puts.