The Guggenheim Solar ETF (NYSEArca: TAN) is coming off a week in which it lost 5.3%, but the largest solar may not be down and out for long.
At the technical level, the ETF appears to be consolidating, which could give opportunistic, patient buyers a low-risk entry.
“The current base in TAN is the first touch of the 40wma since the strong uptrend began in 2013, which offers a low-risk entry to participate in what should be at least one more significant wave up in solar stocks,” according to Deron Wagner of Morpheus Trading Group.
As the epitome of a momentum play, TAN was punished during the sell-off that afflicted so many high beta stocks and ETFs late in the first quarter and into the early part of the second quarter. TAN’s tumble actually lasted longer than some of its momentum counterparts. From its March 6 peak to its May 20 trough, TAN slid 26.5%, entering a bear market along the way. [A Tumble for TAN]
Since then TAN has surged 14.1% and has reclaimed its 50- and 200-day moving averages.
“The daily chart shows the higher low in place in early June, with the current pullback attempting to hold a strong support level at $40, where the rising 50 and 200-day MAs and prior swing low converge,” added Wagner.
A familiar fundamental catalyst could again boost TAN: Short covering. Two TAN holdings – SolarCity and GT Advanced Technologies (NasdaqGS: GTAT) – currently rank among the most shorted stocks on Wall Street with short interests of 29.2% and 34.3%, respectively, according to Business Insider. Those stocks combine for 12.6% of TAN’s weight. [Solar ETF’s Secret Sauce]
Additionally, solar sector short interest is on the rise. Recent NASDAQ data indicate SunEdison’s (NYSE: SUNE) short interest has jumped to 25.6% while SunPower’s (NasdaqGS: SPWR) has climbed to 26.3%, according to 24/7 Wall Street.
First Solar’s (NasdaqGS: FSLR) short interest is up to 15.3% of the company’s float. First Solar, SunEdison and SunPower combine for over 21% of TAN’s weight.
Heavily shorted holdings can actually work in TAN’s favor. As the Wall Street Journal recently reported, a well-oiled securities lending operation has enabled TAN to outperform its underlying index by an average of 3.6% per year. With demand rising to short TAN’s holdings, those securities lending fees collected by the issuer could again work in favor of investors that are long the ETF.
Guggenheim Solar ETF
