Bullish Solar ETF Chart (TAN) ~$18 neckline

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

JA Solar (JASO) looks better than ever

As you know, I've been a fan of JA Solar since they did their IPO in 2007 but my opinion of the stock has varied with he times and the charts. I've kept a close eye on JASO ever since it broke out of its two year range in September, nearly doubling in price over two months. Since that peak JASO has sold off with the sector after a sharp decline in crude bringing JASO back to the breakout point for a perfect buying opportunity. Volume was strong on the initial breakout so I'd expect it to follow through (upward) from here. One word of caution on this chart, the stochastics look bearish and the CCI is giving a sell signal.

I'm no value investor by any stretch of the imagination but with a PE of under 7 and a PEG of 0.34 (five year expected) JASO looks like the cheapest growth stock on the planet. They just signed a massive five year 10GW polysilicon supply deal which is roughly equal to the annual total global production of solar cells. They certainly don't seem to be in any kind of trouble and are planning ahead for the long run, why such a low valuation? Since solar is really a call option on future energy prices, we have to check out crude:

Crude rallied to a new two year high at the close Friday, no issues there. You can draw your own conclusions about this situation. Other issues I like in the solar space are FSLR and the TAN etf.

Disclosure: I am long JASO calls.

A nice sound rounding base for solar?

I want to be bullish on solar. It seems obvious to me that in the not so distant future the cost of solar cell technology will drop enough as efficiency rises to make it the cheapest, and not to mention cleanest, source of energy. In the last energy bubble solar came close to competing without government subsidy (cost parity was effectively reached with natural gas at the peak by FSLR). I personally believe that the next leap forward for civilization (following the internet boom) will come cheap distributed energy provided by photovoltaics. Thus, I keep a close eye on the sector in the expectation that when the day comes for solar, the winning companies will see their stocks increase by orders of magnitude. Ok, enough of the anticipatory irrational exuberance, what do they look like today?

Well, not so great to be frank. Solar has underperformed the market in 2009 and as a whole is basically flat on the year. The sector is very mixed but I find that the ETF TAN is a good way to follow the industry trend. In the seven month chart above you can see that similar to JASO, the industry has been forming a wide rounding base. While TAN seems to be having difficulty getting any traction upwards, there is a series of higher lows and higher highs in place. Clearly, in order for this trend to continue TAN needs to take out $10.77 relatively soon. A break of $11.67 would be *big time* and target $18.69. I like how TAN has found support at its 200 dma for the past six months or so consistently (plus or minus a few days).

SPWRA is a stock that I bought last week in the sector but I'm not feeling so hot about right now. I picked it up after what I perceived to be an over reaction to accounting issues announced last week. The stock was down about 25% in two sessions and it seemed like a good value to me given their leadership in the single crystal silicon PV market. That being said, take a look at this beautiful bear of a long term chart:

Yikes! I think theres a good chance SPWRA is just washing out long term holders here given the volume last week and the severity of the break. But... this stock was at $165 in 2007 and aside from the global recession and a decline in energy prices nothing fundamental has gone wrong with this company (well and some recent, minor, accounting issues). I mean, many would argue that this company is the blue chip of the solar space. For the cheapest lower efficiency thin film PV its FSLR, but for the high efficiency single crystal PV its SPWRA. However, given the chart, I will have a very short patience with it. In the absence of a sharp rebound in the next week I'll be out and might even try a short. The chart is suggesting a price target in the $10 range.

Disclosure: I own JASO and SPRWA shares.

Natural Gas Pair Trades

Here's just a quick post before I take off for a two week long vacation. As you know, I think natural gas is forming an important bottom here. While it could go lower, I could also see it going much higher in the short term. In the long run, it seems impossible for natural gas to not rise.

That being said, I am nervous. I am nervous that the stock market will crash any day and if it does it will take commodities down with it. I'm also nervous that there are way to many traders jumping on the natural gas bandwagon before a clear sign of higher highs, they could get wiped out on a renewed and accelerated decline. I am nervous about the open interest in UNG calls and the building natural gas stockpiles. I don't want to be short, but I'd like a hedge. The two that make sense to me are natural gas producer stocks and solar stocks. Both of those sectors have shot up huge in advance of natural gas prices of which their industry completely depends. So shorting either FCG (nat gas producer etf) or TAN (solar stock etf) to hedge a long position in UNG seems prudent.

Here are the charts for shorting FCG or TAN whist long UNG. In both cases there is a long way back to the "mean value." With both you could "own these charts" by being short one share of FCG or TAN for every share of UNG long. In both cases I could see these trades doubling by Fall in a "mean reversion."

See you in a few weeks!

Disclosure: I own UNG calls.

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.

Four Cases of Stocks Up on Bad News

Lately its seems like investor sentiment has been improving but its hard to pin down exactly why. One thing I've noticed over the past week or so is that stocks are shrugging off bad news. They will initially be down on some worst than expected headline number and reverse course later on in the day. Without thinking too hard you can see how this might be a good thing. If stocks aren't going down on bad news then what will happen if there is even a hint of good news? It seems to me like the mood is shifting towards more optimism about the market. When stocks are down it is being perceived as an opportunity rather than a reason to panic. So for you tonight I've got four extra ordinary cases of stocks going up on bad news recently.

1. Stock market rallies on worst than expected job losses, largest in 34 years.

From Bloomberg Friday Dec 5th, "Employers cut 533,000 jobs last month, bringing losses so far this year to 1.91 million, the Labor Department said today in Washington. November’s drop exceeded all 73 forecasts in a Bloomberg News survey. The unemployment rate rose to 6.7 percent, the highest level since 1993. ...

Payrolls were forecast to drop by 335,000, according to the median estimate in the Bloomberg survey. The jobless rate was projected to rise to 6.8 percent. Revisions for September and October increased job losses by 199,000. November was the 11th consecutive drop in payrolls. ...

Stock futures sank. Contracts on the Standard & Poor’s 500 index lost 2.1 percent to 829.90 at 8:34 a.m. in New York. "

Yep the futures sank alright, just before they popped to gain 4%+ on the day. Note the first red arrow in the chart below, the second red arrow is from #4.


2. Semiconductor stocks rallied on disappointing earnings and lowered guidance.

"Texas Instruments(TXN) tore down its estimates for fourth-quarter results late Monday, offering a revenue midpoint that was 30% below third-quarter results.

Similarly, National Semiconductor(NSM) said its fiscal third-quarter revenue would fall 30% sequentially, well below the Street's consensus analyst estimate. "


Despite the bad news NSM popped more than 10% and TXN was +6% along with the entire sector which had gaped lower Tuesday morning on all the bad news. Now some would make a lot bigger deal about the semiconductor strength than I will. In the last two bull markets this sector was a leader and was widely followed by traders looking for guidance. There may be some truth to this philosophy because the last peak for SMH was in July 2007, three months before the all time high in the dow and S&P. Personally, I preffer to follow the small caps for leadership.

3. Solar stocks held on lowered guidance and downgrades.

Tuesday, "shares of several solar companies sunk after German photovoltaic cell producer Q-Cells SE lowered its outlook through 2009 because of an expected inventory glut."

Then First Solar, was downgraded to Wednesday by Stanford Research.

And later that day, JASO CEO Samuel Yang said "over the past few weeks, we have seen a dramatic slowdown in orders, which we believe is related to macro economic conditions."


Well the solars didn't exactly pop on the news but they didn't sell off either. Each dip was met with buyers and TAN, the solar ETF, remained in a two week range. This is more of a case of stocks not dropping rather than rallying but its bullish that these stocks were able to shrug off bad news.

4. Broad market rallies with auto companies on Senate auto bailout rejection.

"Dec. 12 (Bloomberg) -- European and U.S. stock-index futures tumbled as the Senate’s rejection of a $14 billion rescue package for American automakers threatened to deepen the global economic slump. Treasuries rose, while the dollar slid. ...

“When something like this news hits the streets, all the good news is gone,” said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion. “Given the concerns over the job losses if the auto industry were to collapse, and if the rescue fails, it will send a big dampening effect to investor sentiment.”

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, lost 117, or 4.7 percent, to 2,369 at 7:42 a.m. in London. Standard & Poor’s 500 Index futures expiring in March slid 4.1 percent. The U.K.’s FTSE 100 Index is set to open 151 points lower, according to IG Markets. The MSCI Asia Pacific Index lost 3.4 percent. "

We got this news Friday morning, which nuked the overseas markets and US futures. Somehow stocks crawled back and managed to even close green. The dow and S&P gained about .7% while the small caps vaulted over 3%. GM closed down only 4% after having crashed 37% earlier in the day and Ford was up 5%. Now I realize there was alot of speculation in the media about a Treasury funded rescue but I think many agree that would have been expected in the event of a Senate rejection. The big news was that congress rejected the automaker's requests/plans, and stocks went up despite that news.

I think this another good reason to believe a major bottom has been made in stocks. I'm not saying the bear market is over or that the ultimate lows have been made. But I think stocks are due for a prolonged rally that may or may not develop into the next bull market. When I see stocks moving up on bad news I take that as a sign that its time to be buying dips rather than shorting rips.

Disclosure: I have bullish positions in solars, NSM and RUT.