Tuesday, June 22, 2010

Why we bailed on First Solar and Sunpower: "Stocks Tumble as Technical Markers Give Way" (FSLR; SPWRA; SPWRB)

Some self-referential [reverential? -ed] backround:
Yesterday we posted "Solar Stocks Relative Strength Decelerating; Chicken Trader Says Thanks for the Ride (FSLR; SPWRA; TSL)", focusing on the RS of the first two stocks, whom we'd been cheerleading for two and three weeks respectively.

There was also the larger market to consider. We were looking at lines on charts and were struck by the same thing Bespoke was when they posted this at 1:00 p.m. EDT:
...The major indices had a tough time breaking above their 200-day moving averages on this current run higher, but they finally broke through last week.  Will the 50-day end up being as tough of resistance to get through as the 200-day was?
On September 21, 2008, during the height of the financial crisis, I mentioned some of our philosophy:
A note for new visitors.
The focus of this blog is making money from climate and weather. This gives us a very large canvas: agriculture, commodities, fossil fuels, solar, wind; policy, politics, science, finance, investing, psychology, sociology, technology and on and on. Reality, perceptions etc.
(pretty much whatever we think may be of use to our readers)
In a November '08 post, "Why We Expanded our Focus to the Broader Market and Where/What We'll be Looking at Next" I ref'd back to an August 28, 2007 post "James Grant on the Fed's Sub-prime Solution-Socialism for the Rich" which managed to combine credit analysis, Chairman Mao, climate history and the 56th stanza of Tennyson's "In Memoriam" in 260 words (must have been really strong coffee that morning):
I know Climateer Investing has gone off-topic more than usual the last few weeks. The reason, to paraphrase Chairman Mao's statement "The guerilla must move amongst the people as a fish swims in the sea" is that climate/energy investments swim in the larger sea of the markets.
Here's one of the sharpest credit analysts combining some climate history with economics "red in tooth and claw".*
...Significantly, such cycles have occurred in every institutional, monetary and regulatory setting. No need for a central bank or for the proliferation of hedge funds to foment a panic - there have been plenty of dislocations without any of the modern-day improvements.
Late in the 1880s, long before the institution of the Federal Reserve, Eastern savers and Western borrowers teamed up to inflate the value of cropland in America's Great Plains. Gimmicky mortgages and loose talk of a new era in rainfall beguiled the borrowers. High yields on Western mortgages enticed the lenders. But the climate of Kansas and Nebraska reverted to parched, and the drought-stricken debtors trudged back East or to the West Coast in wagons emblazoned, "In God we trusted, in Kansas we busted." To the creditors went the farms.
Full Op-Ed at the International Herald Tribune
*Fifty-sixth stanza of Tennyson's "In Memoriam":
Man her last work, who seem'd so fair,
Such splendid purpose in his eyes,
Who roll'd the psalm to wintry skies,
Who built him fanes of fruitless prayer,

Who trusted God was love indeed
And love Creation's final law -
Tho' nature, red in tooth and claw
With ravine, shriek'd against his creed -

Anywho, here's the headline story that got this whole disjointed reminiscence going, from MarketTalk:
...Now, you’re sure to hear that today’s selloff was sparked by the weak home-sales report, or the drilling moratorium ruling, or even just the always handy and vague “jitters” excuse. Don’t buy any of them. This selloff started yesterday, when the market failed to hold 1126 on the S&P 500; it was a big technical marker. The selloff accelerated today as the S&P fell through 1110 and drifted toward 1105-1103. The 200-day moving average was living around 1100, so it’s a bad sign to close below there.
Here’s a take on it from our colleague Tomi Kilgore:
The S&P 500’s close below what should have been strong support at the 1100 to 1105 makes last week’s breakout look like a head fake. There should have been significant buying interest at that level on the way down, given that it was such stubborn resistance from May 27 through June 4. The fact that it gave way so easily questions the bulls’ resolve. There should be some support at the 1085 to 1090 area. If that level breaks, bears will push for the May 25 low of 1040 again. The S&P 500 lost 18 points at 1095.
Keep in mind, too, that while the numbers can and do dominate trading, especially in thinly traded markets, it’s not just the raw, cold numbers themselves. The bulls are trying to do something here with the numbers, but the economy, and the questions swirling around its strength, where it’s going and what that ultimately means for corporate profits, is preventing them from doing so.
By-the-bye, FSLR closed at $119.84, down $2.61 and SPWRA at $14.30 down 21 cents.
Nothing done on TSL.
We'll see what tomorrow brings.