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Momentum stops China solar stocks

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sun(Sept. 10, 2009 - Chinavestor) Chinese solar stocks traded sideways on Wednesday following double digit gains on Tuesday as investors digested news bites. See Chinavestor coverage from yesterday: "Solar stocks shine again" Two important developments spurred buzz within the sector on Tuesday: for one the new Japanese government came into office on a green platform and for two First Solar (NASDAQ:FSLR) from Tempe, Arizona is said to build a mega solar project in Inner Mongolia, China. Both stories came into the public eye in well rounded articles thanks to the the Wall Street Journal.

 

Chinese solar stocks on Wednesday, September 9, 2009

Name Ticker Change [$] Change [%]
Suntech Power NYSE:STP -0.16 -1.01
LDK Solar NYSE:LDK -0.56 -5.47
JA Solar NASDAQ:JASO -0.21 -5.16
Solarfun Holdings NASDAQ:SOLF -0.38 -5.78
Trina Solar Ltd. NYSE:TSL 0.18 0.63
China Suneergy Co. NASDAQ:CSUN -0.10 -2.13
ReneSolar Ltd. NYSE:SOL -0.07 -1.18
Yingli Green Energy NYSE:YGE 0.22 1.70
Canadian Solar NASDAQ:CSIQ -0.34 -2.04

But as the summary table testifies, most Chinese solar companies lost their shine on Wednesday. The question is twofold: where are solar stocks are gong to go from here, and for two what stocks are going to do well within the sector?

Solar sector overbought/oversold indicator

solar_910

Based on a technical condition, JA Solar (NASDAQ:JASO) is the most oversold while LDK Solar (NYSE:LDK) is the most appreciated by the market. Trina Solar (NASDAQ:TSL) moved the most in relative terms in the lat week and is trading at the upper end of its trading range.

Looking at revenues and earnings of these solar plays, it is no wonder the sector is under water. Revenues have declined for the most prominent players from 2008 on but dynamics suggest the decline might have come to an end.

solar_09Q2_revenue

But when it comes to execution, it is important to notice that LDK Solar (NYSE:LDK) is in trouble suffering from huge losses. While the sector have started to recover from losses, LDK is still deep in the red. Trina Solar (NASDAQ:TSL) has lot of volume and is a promising solar play. ReneSola (NYSE:SOL) is weathering the storm well and is back to profitability at this point. But smaller China solar plays such as China Suntergy (NASDAQ:CSUN), Yingli Green Energy (NYSE:YGE) and Canadian Solar (NASDAQ:CSIQ) are either up for grabs or they will swallow smaller players because solar companies can't burn cash forever.

solar_09Q2_EPS

Looking at the most overbought China stock list below it is appearant that last week's favorite UTI Starcom (NADAQ:UTSI) is still overbought. Sohu.com (NASDAQ:SOHU), Baidu.com (NASDQ:BIDU), Petrochina (PTR) and Ctrip.com (NASDAQ:CTRP) have accumulated strong momentum but are not overbought, implying there is more to the upside.

Most overbought China stock list

OB-910

Looking at the other end of the China stock universe from an oversold point of view, the list has JA Solar (NASDAQ:JASO) and Suntech Power (NYSE:STP). Again, most solar stocks are in the neutral zone from a technical point of view. This suggests that most solar companies can move wither direction depending on momentum and fundamental developments. A stock that is worth paying attention to is Shanda Interactive (NASDAQ:SNDA), a prominent Chinese online game developer and operator. The stock is weak from a technical point of view, well below its peers - an opportunity for bargain hunters.

Most oversold China stock list

OS-910

expl-obos

Overbought A technical condition that occurs when prices are considered too high and susceptible to a decline. Overbought conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp advance from $15 to $30 in 2 weeks might lead a technician to believe that a security is overbought. Or, a security is sometimes considered overbought when the stock is trading out of its trading envelope and is approaching the theoretical high. It is important to keep in mind that overbought is not necessarily the same as being bearish. It merely infers that the stock has risen too far too fast and might be due for a pullback.

Oversold A technical condition that occurs when prices are considered too low and ripe for a rally. Oversold conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp decline from $30 to $15 in 2 weeks might lead a technician to believe that a security is oversold. Or, a security is sometimes considered oversold when the stock is trading below its trading envelope and is approaching theoretical lows. It is important to keep in mind that oversold is not necessarily the same as being bullish. It merely infers that the security has fallen too far too fast and may be due for a reaction rally.



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