Continuation or Retracement for Solars – Yes!

• Posted by Greg Harmon
• on March 14th, 2011

Traders get into awkward situations. Early Monday two stocks on my ‘B’ watch list, Cameco (ticker:$CCJ) and Power-One (ticker:$PWER) were making major moves in the the pre-market……in the opposite direction that I had prepared for. Cameco was off over 14% in the pre-market. And solar names like Power-One were up close to 7%. This was understandable if you followed the media coverage of the Nuclear reactor situation in Japan. When most people are just worrying about the people of Japan and how they can help, traders need to look into how this creates opportunity. Maybe we can meld the two here. The play above was on a shift from Nuclear energy to Solar energy. This seemed overdone both ways to me. Nuclear power was not going to go away anytime soon and solar energy subsidies continue to be cut, by Governments that have no money, making life difficult for these stocks.

But I trade off of technicals so what do I know about this story. After a quick look at the Cameco chart I bought the dip around the 61.8% Fibonacci retracement just under 30. Many have written about this Capitulation play so I will not beat that drum here. But what about the other side of that trade?

The two biggest solar movers on my screen were Power-One and Trina Solar (Ticker:$TSL) which ended up 12.52% and 8.54% respectively. Was this move overdone? Lets take a look at what the charts say.

Power-One, PWER

Friday had failed to confirm the Hammer candle from Thursday and PWER had been in a major downtrend. But it had just held the 61.8% Fibonacci retracement level and was tight against the Bollinger bands. Today’s move creates a dilemma about tomorrow’s direction and that means a trading opportunity. The large move today stopped right at the 50% Fibonacci level and just short of the middle of the Bollinger bands. It also created a bullish Moving Average Convergence Divergence (MACD) cross and put the Relative Strength Index (RSI) into a strong upward slope as it heads to the mid line. The technicals suggest that if it can get through 8.25 – 8.50 that it can run higher to the next resistance area between 9.38 and 9.68, where the 38.2% Fibonacci is near the Simple Moving Averages (SMA’s). Another factor in favor of a move higher is that there is over 38% short interest in this stock, over 5.5 days of volume. But if it fails to break the 8.25 level, the technicals suggest a move back to the 7.12 level at the 61.8% Fibonacci is possible. Watch the 8.25 – 8.50 range and play it accordingly.

Trina Solar, TSL

Trina Solar confirmed a Morning Star Monday, with a large gap up touching the 50 day SMA and then settling just over the 100 day SMA with a Shooting Star candle. This candle has little power as a reversal signal as there has not been a run higher. But it shows clear bearish activity intraday with the long upper shadow. If this stock can move higher early Tuesday then it has the opportunity to continue higher over the 50 day SMA and toward resistance at 28 and then 30. The RSI bolting higher Monday supports more upside and the MACD is starting to improve. But if the stock moves lower then the continuation of the downtrend to support at 24 is likely with 23 as support lower.

The charts of these three stocks reflect the uncertainty of the situation in Japan. This uncertainty is creating opportunities for those that are prepared for whatever outcome. Get ready for the Solar pullback, or continuation tomorrow via these names and trade’m well. And if you make money from either of these trades consider donating it to the Red Cross to help in relief efforts.

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