Solar companies stage a major breakout as bear market ends

In the last few weeks many of the companies within the solar sector experienced terrific rallies that ended in a mini-blow-off top. However, the long-term picture shows an industry that is recovering from a long bear market and has now broken out of a major basing pattern.

Having risen 315% from its late November low of $2.04, Trina Solar has retreated back to its 20-day moving average. The Chinese solar panel maker rose sharply along with other companies in the sector on expectations of an improving industry outlook.

However, having peaked on 21 May at $8.47, the rally reversed after the company released Q1 earnings that showed revenue was down 4% to $260.2 million, which was below analyst’s estimate of $292.8 million.

An 8 month (daily) chart of Trina Solar (TSL) (Click on the chart for a larger version)

An 8 month (daily) chart of Trina Solar (TSL) (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

Although it undoubtedly got overbought in the short-term, the longer-term outlook for the sector now looks bullish.

Below is a chart of the Guggenheim Solar ETF (TAN) which holds 25 solar companies including, First Solar, Sunpower Corp, and Canadian Solar. The chart shows the long bear market followed by a distinct basing pattern and a powerful breakout.

A 5 year (daily) chart of the Guggenheim Solar ETF (TAN) (Click on the chart for a larger version)

A 5 year (daily) chart of the Guggenheim Solar ETF (TAN) (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

The fund is designed to provide investors with exposure to all aspects of the solar energy industry from companies that produce solar panels, to those that provide the raw materials.

Those looking to participate in the recovery of the solar sector should look to accumulate TAN on weakness with a mental stop loss at around $21.

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