Solar Stocks On Fire: CSIQ, FSLR, JKS, STP, YGE

The solar energy sector has been decimated over the past year and in fact, they are one of the few groups that has continued to decline after the general markets bottomed in 2009. The leader in this space, First Solar Inc. (Nasdaq:FSLR) has now experienced two savage corrections that have taken it from over $300 per share in 2008, to under $30 just late last year. There is no question this group has fallen out of favor, and a long-term downtrend still persists as the primary trend. However, the group has started to perk up recently after attempting to consolidate over the past several months. It is possible that this group could catch fire again, even if it is short lived.

Suntech Power Holdings Co., LTD (NYSE:STP) was one of the first stocks in this sector to catch my eye recently, as volume poured into it over the past few days. STP has been trying to bottom since October of last year and recently cleared the $3 level. After clearing the level, it began to trade in a flag pattern just above $3 and blasted higher after only a few days. While STP is likely not worth chasing higher, it could fuel sympathy moves in other solar stocks. (Making money in a pressure-cooker environment is all about minimizing risk on hot picks. For more, see Mastering Short-Term Trading.)

One such stock is Canadian Solar Inc. (Nasdaq:CSIQ). CSIQ has also been trying to build a base and may have formed a double bottom over the past few months (November and December lows). Volume has really poured into this stock over the past few days, and it was able to clear the bottoming pattern in mid January. It is now forming a similar bull flag to STP and could clear the pattern if the sector continues to attract attention. (For related reading, see How To Interpret Technical Analysis Price Patterns: Triple Tops And Bottoms.)

Yingli Green Energy (NYSE:YGE) is another solar stock to keep an eye on. It is also trying to form a bottoming pattern after a horrific decline. It has been trading sideways for the better part of the last five months and has tested $5 on a few occasions. It recently cleared this level and is now trading in a tight rage just at the level. Volume has also sharply increased, lending credence to the breakout attempt. (Trading range breakouts is unprofitable for most novice traders; here are some alternatives that can be used. For more, see 3 Reasons Not To Trade Range Breakouts.)

While JinkoSolar Holding Company Limited (NYSE:JKS) may not be as close to bottoming as its peers, it is also following the near-term pattern of flagging after a high volume rally attempt. It appears that $5 has held as clear support and JKS may be headed for a test of the top of its established range near $10. This is still over 30% away and not farfetched as a short-term target. (Use of support and resistance zones can be a key to successful trades. For more, see Interpreting Support And Resistance Zones.)

The Bottom Line
While the allure of fast profits is certainly tempting, I must warn traders that this is still a very risky sector to place bets on. The established downtrend is one of the nastiest currently occurring in the markets, and this means that even if this is a bottom that is forming, there will be many false moves and volatile price swings. Traders need to clearly understand where they would stop out and not fall into the trap of “doubling down” in the inevitable shakeout or reversal. However, for disciplined traders, there is a real chance that this group offers a good trading opportunity in the near future.