Solar Stocks: A Case Study on Technical Analysis

Never ignore the downtrodden, we noted in late March 2017.

At the time, solar stocks had been left for dead, including Canadian Solar (CSIQ) and the Guggenheim Solar ETF (TAN) on lower gas prices, concerns about phased-out subsidies, and far too much debt.

However, while the fundamental story was weak, the technical side of the story told us the worst may have been priced in.  Look at CSIQ for example.  In late March, the stock became aggressively oversold at triple bottom support with relative strength (RSI), MACD and Money Flow (MFI) beginning to reverse, as well.

To us, it was a sign of bearish exhaustion – a set up we’ve been dozens of times.  At the time, CSIQ traded at $11.59 – triple bottom support. 

It would run as high as $14.33 not long after just weeks later. 

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Or look at the Guggenheim ETF (TAN).  At the time, the ETF traded at $17.38.  Relative strength  (RSI) had just bottomed out.  Williams’ %R (W%R) was deep in oversold territory under its 70-line.  Money Flow (MFI) was stuck at its 20-line.

All confirmed the ETF was oversold.  Plus, it had just caught triple bottom support dating back to February 2017.  Again, the bears exhausted that side of the trade.  Now, all we had to do was wait.  It would run from $17.38 to $18.39 in weeks.

Each produced a quick gain for folks that did nothing but watch where the bears became exhausted.  The bulls can take their money and go home.  Or, they can become bearish, near-term as those same indicators now warn of downside.

Again, take a look at TAN.  In late May 2017, the ETF was challenging triple-top resistance points dating back to March 2017.  Relative strength began to reverse from its 70-line.  MACD became over-extended.  Williams’ %R was in overbought territory.  All aligned to tell us the stock could potentially reverse.

Interesting to note, we can also use Bollinger Bands (2,20) to help tell us when a trade is likely to pivot and reverse.  Look at what happened about 80% of the time when the upper or lower Bollinger Bands were touched or penetrated, coupled with an oversold or overbought read on RSI, MACD and Money Flow.

The trade in question began to pivot and reverse.

Once again, this proves that technical analysis does work – very well.

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