Solar energy stocks and sector-related exchange traded funds have retreated back toward their short-term support, and traders should remain wary as the outlook for a major photovoltaic panel producer looks cloudy.

Over the past week, the Guggenheim Solar ETF (NYSEArca: TAN) declined 5.4% and the Market Vectors Solar Energy ETF (NYSEArca: KWT) decreased 4.1%, trading around their 50-day simple moving averages, after climbing 33.3% and 25.5%, respectively, year-to-date. [A Reason for Caution With Solar ETFs]

Looking ahead, Markit research warned that TAN’s heavy position in Hanergy Thin Film Power Group, the world’s largest solar power company, could cause problems for the ETF, reports Chris Dieterich for Barron’s.

Hanergy Thin Film Power Group is the largest component in TAN, accounting for 12.2% fund’s portfolio.

Markit is concerned that the overwhelming bearish sentiment in Hanergy may foreshadow potential problems ahead. Hanergy Thin Film Power Group mainly supplies solar panel equipment to its private parent company Hanergy Group, and some have questioned the accounting practices, which have fueled the short bets.

“The TAN solar ETF is up 40% year to date, but the performance of this perceived proxy for the solar industry may falter as returns have been driven by the tightly held and heavily shorted Hanergy,” Relte Stephen Schutte of Markit said in the article.

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