Solar Stocks Bring the Heat

Solar Energy ETF, $TAN has been the 2nd best performer on our list of Thematic and Industry Group ETFs over the trailing 1 and 3-months (behind Gold Miners $GDX and Home Construction $ITB) and the top performer over the trailing 6-months (+37%). The ETF has returned over 10% this past month which is more than 5x the S&P 500's performance over the same period. This strength is in particular contrast to the broader Energy space ($XLE) which has been the worst performing sector across all three durations (-4.25%, -6.91%, -0.04% over the last 1, 3 and 6-months).

Long story short, we're watching Solar stocks here as the group has been exhibiting notable outperformance over both short and long-term timeframes. Some individual names showing considerable strength with favorable setups within the space are SolarEdge ($SEDG), Hannon Armstrong ($HASI) and SunRun ($RUN). Patrick Dunuwila, Editor of The Chart Report, was on Real Vision this week recommending a long idea in SunRun, which you can watch below.

In a post a few months back, we explored the idea of what makes the strongest stocks - is it those that perform the best over a certain period or those making new highs? We concluded the best answer is probably both, and TAN is one of few areas of the market that currently fits that profile. As just mentioned, TAN has been the best performer over multiple timeframes; it has also been the strongest ETF on our list on a YTD basis and off the S&P's December lows. But just as importantly, it is one of few areas of US Equities currently making new 52-week highs.

Looking at the weekly chart above, notice TAN resolved higher from a consolidation in early June and the resulting breakout propelled prices past a critical level of interest at multiple tops from 2018 ~$27. The recent relative strength in TAN has been enough to justify initiating a trade on the long end but now we have a clear level of prior resistance to define our risk against. This $27 zone also coincides with the 62% Fibonacci retracement from the 2013 rally.

While it may be healthy to consolidate some at current levels, if TAN can hold above $27, this is a setup that provides a skewed reward/risk opportunity in one of the best trends in the market with risk defined just below current prices at key support/prior highs. Finding the strongest areas of the market is one thing, but identifying and exploiting the entries that offer the most asymmetrical profit opportunities is how real money is made. This could be one of them.