It is still early in 2014, but the Guggenheim Solar ETF (NYSEArca: TAN) is up to its old tricks and that is good thing for those holding the ETF.
“Old tricks” being that TAN was 2013’s top-performing energy sector ETF AND the best non-leveraged ETF of any type. Not even halfway through January, TAN is already 2014’s best non-leveraged ETF. TAN’s almost 13% jump to start the year has the fund facing technical resistance and on the cusp of a potentially epic breakout. [Sun Shines for 2013’s Best Energy ETF]
“After an incredible run in 2013 investors are hoping the sun will continue to shine for this sector that has been an investor favorite for the high beta momentum players,” said Al Sabogal, former head trader for Perry Capital, in an email exchange with ETF Trends.
Sabogal provided ETF Trends with a chart of TAN that shows clearly defined trend channel some professional traders have been using to trade the ETF and its constituents.
“While it has done nothing to violate the overall channel so far it is showing some signs of either being in the midst of digesting its incredible 2013 run or having trouble breaking above its October highs,” add Sabogal.
TAN has been boosted this year by a familiar catalyst: Elon Musk’s SolarCity (NasdaqGM: SCTY). Up more than 700% since its December 2012 initial public offering, SolarCity was up 13% this year heading into Friday’s session. The stock is now TAN’s second-largest holding at a weight of almost 6.5%, according to issuer data.
SolarCity “is an investor favorite with Musk also serving as the Chairman and with its focus on the fastest growing residential market. Goldman Sachs just last week added it to its conviction buy list and is also a top pick of other brokerage firms,” said Sabogal.
Still, some caution is warranted with SolarCIty as Sabogal notes, saying “even though it is growing at a fast pace much of that is fully priced in and it needs to continue proving itself by having earnings eventually support the high expectations.” [Solar ETFs Look for 2014 Sequel]
Caution could be the order of the day in the near-term for TAN and solar stocks given the sector’s penchant for out-sized moves in either direction. TAN’s standard deviation is 52.1%, or nearly quadruple that of the MSCI World Index, according to Guggenheim data.
“The sector can definitely continue to outperform but to some degree it is still hostage to overall market performance. A selloff in the overall market will have momentum traders fleeing the space as these high beta names can suffer a painful pullback of their own…high beta goes in both directions,” said Sabogal.