It's been tough going for the solar sector in 2010. In fact, the
Claymore/MAC Global Solar Index Fund (
) has shed roughly 28% on a year-to-date basis, compared to the
S&P 500 Index's (SPX) gain of more than 12% for the same time
frame. What's more, TAN's recent rejection at its 160-day moving
average has forced the exchange-traded fund (
) back below long-term resistance at the $7.50 level.
Despite its poor performance, investors remain bullishly aligned
on the sector. For instance, nearly half of the 311 ratings on
alternative energy stocks are "buys" or better. As TAN's price
action weakens, these bulls could be forced into abandoning their
losing positions, thus resulting in additional downward pressure on
JA Solar Holdings Co. Ltd.
Within the solar sector, JA Solar Holdings Co. Ltd. (
) is a prime example of the group's poor performance. Since peaking
near $10.20 on Oct. 24, JASO has plummeted more than 32%, with the
stock dipping below former support at its 10-week and 20-week
moving averages. What's more, JASO is now trading back beneath
long-term resistance at the $7 level. This region capped the equity
between October 2008 and September 2010, and could once again pose
a significant technical hurdle.
On the sentiment front, Wall Street remains firmly entrenched in
the bulls' camp, despite JASO's weakening price action. According
, 11 of the 19 analysts following the security rate it a "buy" or
better. What's more,
reports that the average 12-month price target for JASO rests at
$11.69 - a premium of nearly 70% to the stock's current trading
range. Any downgrades or price-target cuts could provide fuel for
another round of selling pressure for JASO.
The situation is much the same outside of the analyst community.
For instance, JASO's Schaeffer's put/call open interest ratio
(SOIR) of 0.54 indicates that calls nearly double puts among
options with less than three months until expiration. While this
ratio ranks near the midpoint of its annual range, speculators on
the International Securities Exchange (ISE) and Chicago Board
Options Exchange (
) appear to be working on sending JASO's SOIR lower. During the
prior two weeks, more than nine calls were bought to open for every
one put purchased on these exchanges. As JASO continues lower, an
unwinding of the hedges related to these calls could create a
headwind for the shares.
Finally, short interest soared roughly 27.6% during the prior
month, resulting in about 18.9 million JASO shares sold short. As a
result, nearly 15% of the stock's float is now sold short. With
call buying rising in tandem with short selling, it is likely that
some JASO bears are hedging their positions. With hedges to protect
their positions, it could embolden short sellers, thus creating
additional selling pressure for JASO. Traders looking to take
advantage of an extended sell-off for the stock should consider a
February 8 put.
JinkoSolar Holding Co. Ltd
JinkoSolar Holding Co. Ltd. (
) held its initial public offering (IPO) on May 14, with the stock
closing at $11.01 on the session. Following a brief dip, the shares
proceeded to rocket nearly three-fold to a peak of $41.75 on Nov.
4. However, the shine may have finally worn off this freshman solar
stock, as JKS has plunged more than 92% from its November peak,
roughly halving its post-IPO surge.
Currently, JKS is struggling to maintain support at the $21
level, an area that has held as short-term support since the
beginning of December. However, the $23 region, an area that has
provided support and resistance since August, has capped JKS during
the same time frame.
What's more, the equity's 10-day and 20-day moving averages have
descended into the $23 region, and are creating considerable
downward pressure on the shares. JKS has not closed a session above
this duo since Nov. 9. A breach of short-term support near $21
could mark the beginning of another downleg for JKS.
On the options front, JKS speculators have loaded up on bullish
bets. For instance, the stock's SOIR of 0.45 indicates that calls
more than double puts among options with less than three months
until expiration. Meanwhile, the stock's ISE/CBOE 10-day call/put
volume ratio arrives at an impressive 43.44. In other words, 43
calls have been bought to open for every one put purchased in the
prior two weeks.
Some of this flood of call buying is likely being used to hedge
short positions. During the past month, the number of JKS shares
sold short spiked a whopping 91% to 2.1 million. While more than
18% of the stock's float is sold short, a breach of support at the
$21 level could embolden these bearish traders, thus exacerbating
JKS' decline. Traders looking to bank a profit on the equity's
eroding price action should consider a February 25 put.
GT Solar International Inc. (SOLR)
The sun is not setting on every member of the solar sector,
however, as evidenced by GT Solar International Inc.'s (SOLR)
year-to-date rally of more than 53%. Technically, the stock has
enjoyed the support of its 10-week and 20-week moving averages
since June. And, while the shares breached this duo in early
November, SOLR's 50-week moving average quickly moved in to provide
a springboard of support.
Options traders have picked up on SOLR's strong price action, as
the stock's SOIR of 0.44 indicates that calls more than double puts
among near-term options. This ratio also ranks below 89% of all
those taken in the past year, indicating potentially high
expectations from options traders.
What's more, SOLR's 10-day ISE/CBOE call/put volume ratio has
ballooned to a reading of 33.16. In other words, more than 33 calls
have been purchased for every one put bought to open in the prior
two weeks. This reading also ranks above 80% of all those taken in
the past year, meaning that speculative traders have rarely
snatched up calls at a faster paced in the prior 52 weeks.
Options traders aren't alone in their bullish outlook. For
instance, eight of the 10 analysts following the shares rate them a
"buy" or better, with a distinct lack of "sells." Furthermore,
reports that SOLR's average 12-month price target rests at $11.52 -
a premium of roughly 30% to the stock's current trading range.
Short sellers, meanwhile, have eschewed the bullish outlook for
SOLR. During the most recent reporting period, these bearish
traders increased their bets by more than 14%, resulting in about
10% of the stock's float being sold short. This rise in short
interest could also explain some of the call buying on the ISE and
CBOE, as short sellers look to hedge their bets.
It's important to remember that, from a contrarian perspective,
bullish investor sentiment is only a detriment to declining stocks.
As such, the optimism from options traders and Wall Street analysts
is to be expected for SOLR, especially since the stock is up more
than 50% in 2010. The key to the stock's outlook is $9-$10 region.
If SOLR can finally push past this technical sticking point, it
could force short sellers to capitulate to the security's uptrend.
However, a rejection here could send the bulls scrambling for the
Given this outlook, bullish SOLR options traders may want to
consider entering a call spread by buying the February 7.50 call
and selling the February 10 call in order to lower breakeven and
limit losses if the equity is unable to break out to the
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