After a blistering start to the year we warned readers in March that several solar charts were showing warning signs that all was not well for this sector. As it turned out many solar names would fall 40-50% over the ensuing ten weeks:

Click to enlarge

CSIQ

CSIQ_March

 

GTAT

GTAT_March

 

SCTY

SCTY_March

Now it appears that the worm has turned once again for the solar sector and the correction has likely reached its conclusion:

TAN Daily

TAN_Daily_6.17.2014

Many solar stocks such as CSIQ and SCTY have aggressively broken out of basing patterns this week and the 5-year weekly chart of TAN (Solar ETF) highlights the considerable upside potential that this sector still offers longer term:

TAN 5-year Weekly

TAN_Weekly_6.17.2014

The fact that many solars have considerable short interest (GTAT 34% of float is shorted, SCTY 28% of float is shorted, SUNE 25% of the float is shorted) only adds fuel to the fire of the summer solar rally which is currently underway. While we like outright long positions in the above mentioned stocks, more conservative investors might consider a pairs trade of long TAN vs. short XLE (energy ETF which also happened to be the most overbought sector heading into this week).