As we noted last week [Aug 21: Starting to Layer out of some Solar]
If we were in a bull market, I'd let these solar names run farther since they can rally for a few good weeks in fantastic fashion but it's been about a week and a half and this market is infamous for stealing gains away from you in the dead of the night. In my "layer in and out" approach I am going to begin taking profits in my "big 3": ReneSola (SOL), LDK Solar (LDK), and Energy Conversion Devices (ENER) - the latter I am beginning to worry about because I am hearing it's name almost on every website and financial TV show I watch in the past 48 hours.
Energy Conversion Devices and Solarfun Power (SOLF) report next week and that pretty much ends the major names in the sector. If this rally continues into those reports I plan to cut back much more severely as in my mind, it would set up a sell the news reaction. We've had a great run in a very short amount of time and I'll let other people assume the risk from there. Especially in this sort of market.
So as we approach the earnings reports for these 2 names, I'm cutting some more exposure across the board - when these stocks reverse it can get ugly fast and we have some very nice gains I want to protect in this sector. I did add to Trina Solar (TSL) last week hoping it would join the party since it was a laggard - it looked to be doing so up until yesterday but now we have one of these breakdowns (not confirmed yet) below support and I'm simply doing the same thing I am doing in stock after stock; if a support level is broken I'm cutting back severely. An incremental approach does not work in this market. ReneSola (SOL) is also at a similar stage as well. We want to focus on the closing price, not the intraday price but with the 50 day moving average for Trina Solar just under $33 and the stock now trading in the $31s - in a very overbought sector I am going to assume there won't be a miraculous recovery here in the next 3 hours unless the market makes a strong move up. (note the chart below shows the 50 day moving average to be lower than it really is)
Specific to Trina Solar I've cut it back from a 2.5% allocation to 0.4%. This continues to showcase how tough finding gains are in this market - you have to be in (when the stock is out of favor), then back out, and back to the sideline quickly. Time frames are more compressed than I can ever remember for "winning trades". Luckily we "bought a bottom" in solar 2 weeks ago - enjoyed a nice week and a half rally - and now need to head to the sideline in my estimation. This is not our typical strategy, but this is all the current market environment is offering. So until conditions turn for the better for investors, we have to respect that and act with a much more short lived timeline. ReneSola below $17.50 tomorrow will be the next to go, if it begins to flail. Again, I expect a 'sell the news' reaction to the remaining solar stocks simply because too many momentum traders have piled in and those late to the game rarely win. We'll know in the next 48 hours if that hunch was correct, but either way I don't find the risk/reward in our favor anymore.
With the ability to make money on the long side so difficult, I continue to favor a high cash position. Only very active traders with very short time frames are benefitting from current conditions which does not suit a mutual fund environment. So it's better to let the market simply churn in mindless manner without a large overexposure at this time.
Long all names mentioned except Solarfun Power in fund and personal account
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