Let’s be honest. Solar stocks haven’t performed near as well this year as many hoped. Starry-eyed investors came rushing into the industry after the Democrats took control of Washington. The blue wave shifted the balance power toward those with a fonder view of green initiatives. And thus, higher prices for solar stocks.
I have some good news for those who bought into the logic and so far are disappointed. The price action in solar stocks is heating up. Bottoming patterns have formed, and many of them look primed for higher prices.
So I scanned the usual suspects in the industry and narrowed it down to these three good-looking choices.
- Invesco Solar ETF (NYSEARCA:TAN)
- First Solar (NASDAQ:FSLR)
- Canadian Solar (NASDAQ:CSIQ)
Join me for a quick look at each chart. Then I’ll pitch my preferred strategy to capitalize on the turnaround.
Solar Stocks: Invesco Solar ETF (TAN)
First up is the Invesco Solar exchange-traded fund, which is Wall Street’s most popular solar-based fund. The beauty of buying TAN is you sidestep stock-picking altogether. Instead, you’re buying the entire basket of solar stocks. As goes the industry, so goes the fund.
The upside reversal has been gradual, but the gains are racking up. At Friday’s intraday high, TAN was up 30% from last month’s lows. Along the way, prices climbed above all major moving averages.
Implied volatility is in the tank at the fourth percentile, so long premium plays are the obvious choice. I like bull call diagonal spreads.
The Trade: Buy the October $80 call while selling the August $92 call for a net debit of $7.60.
First Solar (FSLR)
First Solar got a boost recently after the U.S. government banned importing specific solar panel material from China. Though traders initially sold the up gap, prices returned to rallying on Friday and rose another 4%. Volume exploded to over twice the average volume during the past two sessions to confirm big buyers were entering the fray.
The last time (mid-April) FSLR stock tried to reverse its downtrend, underwhelming earnings arrived to throw cold water on it. This time, there is no looming quarterly report. Instead, we have a Nasdaq at record highs and growth stocks with the wind at their back. Both dynamics give this trend reversal a much better chance at success than its predecessor.
Implied volatility has jumped alongside price, breathing new life into options premiums. I like selling put spreads here to capitalize.
The Trade: Sell the August $75/$70 bull put spread for 60 cents.
Solar Stocks: Canadian Solar (CSIQ)
I saved my favorite setup of the three solar stocks for last. Unlike TAN and FSLR, Canadian Solar hasn’t already ramped. Instead, it’s on the cusp of breaking through a key ceiling at $41. Friday’s high volume session pushed prices through the 50-day moving average, landing CSIQ on the doorstep of resistance. I love the accumulation and cleanliness of the trigger.
A break above $41 is the trigger to wait for. After that, the stock has room to run to $46, so that’s the upside target. In addition, premiums are low enough to make call spreads attractive.
The Trade: Buy the August $41/$46 bull call for $1.25.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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