The charts are showing solar stocks will keep soaring after a strong start to the year
The Invesco Solar ETF (TAN) is outperforming almost every sector except energy. The solar ETF is up 16% year to date and 62% since President Donald Trump’s inauguration. That may be surprising to some as the notion of alternative energy has been a political football for over a decade. One wouldn’t be wrong to allude that one party has been more accommodative to solar and alternative energy than the other. It’s no secret the left tends to favor incentives to become more green than the right, but you wouldn’t know that by share performance. That’s where the charts help. The charts take out that political noise. It’s price action the is the one important factor that investors need to know. Price is fact and you may be surprised to see what it is telling us now. Many may not realize that, during Trump’s first term, TAN rallied ~550% from the time he took office until his departure. I had to go back and reread that line myself, but the numbers jive. Under President Joe Biden it was just the opposite. TAN peaked just after his inauguration and trended lower the entire term. Shares dropped by ~70% while he was in office. That brings us to today and the strength we have been seeing in the sector since Trump returned to office. We are just reversing the trend and things are looking brighter. Let’s break down the charts. The setup On the daily chart, we can see the strong uptrend that has paused over recent days. Coming into today’s trading shares are at a near-term pivot at its 50-day moving average and consolidating between $52 and $60. Momentum indicators in the MACD and RSI are turning positive and indicating that the recent pause is likely to resume that trend higher. Then there’s the longer term set up on the weekly chart. This is where the trade looks appetizing for those with a bigger time horizon and a little more patience. Shares have been on quite the run, but perspective matters. It just broke out and the risk/reward is quite favorable. This checks every technical reversal box. The overall trend has changed. We have a definable low and are now trading above key moving averages and most importantly we have something to reverse. The trade Get long and stay long above $50. Use stops just under $45, or to your personal pain threshold, to limit losses. If shares fall under the rising 50-week moving average around $45 the trade is broken and it’s time to move on. The upside? This is what we like. Look for shares to attack its recent highs at $60 and push higher. We have seen this sector go on significant rallies in the past and its poised to make a run here. Targets into the mid 70’s are realistic given the recent break out from this longer term formation. Overall, there may be a great tailwind with rising oil costs and people looking for cheaper alternatives. No matter what the fundamental situation happens to be, the trends can’t be ignored. As the weather warms up, it may be time for a TAN. — Jay Woods, CMT with Chase Games DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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