From the desk of Tom Bruni @BruniCharting
It’s been a rainy week here in New York, however, the Solar sector ETF $TAN was a bright spot as it broke out of a 2.5-year base. As a result, we’ve done a deep dive into the sector to identify several names that look to be offering asymmetric reward/risk opportunities on the long side.
The daily chart below shows the Solar sector ETF breaking out of a 2.5-year base as it clears 25.50 decisively. Momentum remains in a bearish regime, but is close to hitting overbought conditions. The upside is former support/resistance near 32, so we want to see prices accelerate and momentum getting into overbought conditions after this breakout.
Click on chart to enlarge view.
First Solar fell nearly 95% from its 2011 highs and has been trying to make upward progress since putting in a low around 11 in 2012. The stock has tested resistance near 75 seven times, but has not been able to close above it for more than a few weeks. With that said, if prices can get above 75 decisively, the next upside objective is at the 61.8% retracement of the 2011-2012 decline near 113.
SolarEdge Technologies Inc. broke out of a 3-year base in February with a powerful breakaway gap pushing prices decisively above 42.70. It quickly met our first price target at 62 and is now above it. As long as prices are above 62 we want to be long and taking profits at our secondary price target of 93.40.
SunRun Inc. broke out of a 2-year base earlier this year and is headed back toward its all-time highs near 13.30. While prices are somewhat extended from their long-term trend, we want to be watching this name and buying a breakout above 13.30 and taking profits near 19.
The last name we want to watch is Daqo New Energy which has done nothing since coming public in late 2010, but is now approaching all-time highs. We want to be buying a breakout above 77.50, with a price target of 123.
The Bottom Line: We remain bullish on equities both in the US and globally and due to the sector rotation that’s been supporting the broader market, Solar looks to be the next area offering us opportunity. The risk is very well-defined in both the sector ETF and the names mentioned above, so we know where we’re wrong and what our upside objectives are.
If you’ve enjoyed this post, consider joining our community by signing up for a 30-Day Risk-Free Trial. which will grant you access to our recent deep dives into the Energy (premium), Retail, and Software (premium) sectors, among other features.