Solar Cycles and Stocks: The Sun Also Rises
I first became interested in solar cycles and stocks when I learned that the legendary commodities trader, William Gann, used solar returns to anticipate his direction of commodities prices.
Solar eclipses have also had a marked circumstantial place in financial history because they seem to coincide with the rapid transformation of investor psychology from bullishness to paranoia, or conversely, from pessimism to hope.
What are the odds that eight of the greatest market crashes in history would fall within a time period of six days before - to three days after - a full moon that occurs within six weeks of a solar eclipse? Less than 1/100,000. Yet that is what happened recently at the capitulation low of the financials on July 15th, just 3 days before the full moon.
Each month the lunar cycle begins with a new moon (that is sometimes a partial eclipse, and on rare occasions, a total solar eclipse, like the one we had on August 1st, 2008. What begins in total darkness when the moon is hidden within the light of the sun, grows ever brighter till it shines as the full moon.
There was a University of Michigan Business School study that examined 100 years of the stock market trends as they related to the lunar phases.
Returns in the 15 days around New Moon dates are about double the returns in the 15 days around full moon dates. This pattern of returns is pervasive: We find it for all major U.S stock indexes over the past 100 years…
As I watched the recent nascent tech rally build up steam off the July lows it was hard not to notice the malaise around solar stocks. Although their earnings reporting period had been one of the best ever, with doubling, tripling, even quadrupling of revenues and profits, the stocks sold off after every report, some of them dramatically so. It didn’t make sense.
There has been a bearish mindset which has cast a pall of gloom over solar for 8 months:
Bear Case (1): The price of poly will plummet; too much supply will come onstream in 2009-2010, and demand will not be able to absorb it. ASPs will fall dramatically, cutting into profits, and the solar cell makers will battle it out for a limited number of customers while contending with oversupply, an inventory correction, and too much debt (from over-expanding capex). A close parallel to this case would be the current situation among the semiconductor memory makers (Micron Technology (MU), SanDisk Corporation (SNDK)).
Bear case (2): The price of poly will not fall that much in 2009, and supplies will continue to be tight (the way they have been for three years). This will negatively affect ASPS as cell makers compete for customers while dealing with their high supply costs and debt levels.
Yet you rarely hear the following: so many companies (170) are actively engaged in bringing new poly to the market that by 2010 the cost of raw poly and wafers may drop as much as 80% from today’s levels; the increased competition for customers and the subsequent drop in ASPs will make solar 40% more affordable to new customers (increasing overall demand) while cells gain another 20%+ efficiency through technical innovation.
I did a recent study of state initiatives, and they are all equally balanced between helping homeowners to install affordable solar [PV] systems while supporting large scale commercial and utility projects for use at peak power times during the day (thin film).
This nonsense about residential solar companies like Akeena (AKNS) not having a future is untrue. The only thing Akeena needs is a turn in the CA real estate market (2009-2010), the mandating of solar BIPV (built-in roofing photovoltaics) for new home construction in the sun belt, and a lowering of the total cost of ownership [TCO] for homeowners who desire a solar system, one that is cash-flow positive from the day they install it.
The upcoming drop in solar ASPs is going to do for solar what chip technologies did for the computer in 1995-99, spawn a robust adoption cycle. We are about 3-6 months away from a U.S. congress passing a stable and lasting Investment Tax Credit [ITC] for solar energy development
Anyone who has flown over thousands of square miles of warehouse roofs or driven for days through sun baked landscapes in the Great American Desert, knows we are sitting on a solar gold mine if we’ll just tap into it. Thermal solar, parabolic solar, thin film, PV – they all have a place at the table.
Which brings me back to my opening paragraph about eclipses. The total solar eclipse on August 1, 2008 was in Leo, the sign of the sun. The ancients agreed that eclipses heralded a new event, sometimes a dramatically new beginning, which would last for an extended period of time, and begin to show its formation sometime within the first two weeks following the solar eclipse.
Because solar stocks are “ruled” by the sun, and this eclipse took place in the sign of the sun, I was very eager to see if something would develop for the solar sector. But I saw no positive movement in solar stocks for 10 days. Not even a budge off the multi-month lows. Then three days before the full moon, Sunpower (SPWR) suddenly announces the largest U.S. contract ever, equal to all the solar installed in the U.S. in 2007 and a fire was lit under the sector.
If my premise is correct, and the current nascent rally in solar holds, we may be witnessing the beginning of the long sought-for bull market in Alternative Energy, the game changer that leads the market from “stuff” to renewable energy tech. You can see the breakouts to the upside in the charts of LDK Solar (LDK), Solarfun Power (SOLF), ReneSola (SOL) and the ripeness of charts like Suntech Power (STP), Trina Solar (TSL) and Yingli Green Energy (YGE).
In terms of solar, the future is half full, not half empty. If – like John Templeton said – we should strive to buy stocks at the point of maximum pessimism (even though we don’t know when that would be) solar stocks surely seem apropos in early August, 2008. Also on the horizon is the eventual advent of Nanosolar, the private thin-film solar company with deep pockets ($) and a technology that can make miles of solar film per hour (in 10’ wide sheets like carpet) for 50 cents/watt (estimate).
The move from fossil fuels towards renewable electric energies in transportation, home heating, lighting and cooling will be one of the greatest paradigm shifts ever, and I believe we still remain in the top of the first inning.
Disclosure: I am long AKNS, SOL, and YGE.
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This article has 23 comments:
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John Cordes
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56 Comments
Aug 22 06:33 AM-
DAD08
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18 Comments
Aug 22 07:14 AMLong- ENER, SOL, SPWR, SOL
Good Trading.
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tilut
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23 Comments
Aug 22 09:04 AM-
unbroke
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7 Comments
Aug 22 09:14 AMI feel like I've been here before. I put all my bets on MSFT and INTC in th early 1990's. Bought on dips. Then I lost most of it from 1999 to 2001. I am hanging in for the ride again.
unbroke
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buystocks
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70 Comments
Aug 22 09:30 AM-
kkin365
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309 Comments
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Aug 22 10:12 AM-
User 10755
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71 Comments
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Aug 22 10:12 AMboston.bizjournals.com...
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NOWHEREMAN
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1499 Comments
Aug 22 10:18 AMThe One thing that all Solar Energy stocks have in common is ?. Solar panels, yup, thats the play. They sit out there 24/7 usually in arid conditions. Guess what, they have to be cleaned. Once a week, depending on conditions like sand storms, someone will go out to clean them, they will use the liquid of choice, WATER, and considering the locations, all of the water will be lost due to evaporation.
Now you know why T. Boone has been buying up water rights in the most arid parts of the country.
Most of you should have read articles by now about the 21st Century's next Oil. Water is in short supply around the world. Millions of panels. Think about not what Solar costs currently or how its costs compare to current output VS Coal. Think instead of the expenses of keeping those panels clean with a resource that several states are already in Courts trying to obtain the rights to for their citizens.
Lets say you use something other than water to clean these panels, the odds are pretty good that whatever it is, it will be oil based.
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User 10755
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71 Comments
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Aug 22 10:19 AMFSLR
STP
CPST
SATC
EMKR
etc.............
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imuni4fun
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3 Comments
Aug 22 11:08 AM-
User 10755
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71 Comments
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Aug 22 11:14 AMMy mistake I meant to post the symbols: SPWR, ENER etc...
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vitamin_j
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39 Comments
Aug 22 01:06 PMHowever, can we come to some kind of consensus about article names? Can we permanently ban all cheesy sun referencing titles for solar articles such as "The Sun Also Rises," "Here Comes the Sun," etc.? I think diversifying our metaphors will help the industry expand further into the mainstream.
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gebby
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191 Comments
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Aug 22 01:55 PM-
Zenfar
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41 Comments
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Aug 22 01:56 PMLong ENER, SPWR, SOLR
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Chipstocktrader
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11 Comments
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Aug 22 05:13 PM-
Ricard
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176 Comments
Aug 22 05:48 PMTheir announcement about a tiny Beijing will be the beginning of a tidal change on how China alleviates domestic energy concerns. Well, at least here's to hoping.
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Ricard
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176 Comments
Aug 22 05:49 PM-
solar jim
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52 Comments
Aug 23 01:15 AMIn opposition to many types of manufacturing, solar doesn't take all that much labor in the form of people. Its a small part of the total cost equation meaning China doesn't enjoy this huge advantage like they do in textiles or other labor intensive industries.
Solar panels weigh a good bit. Shipping from China, at these oil prices, increases the cost and it becomes harder to maintain any cost advantage.
And the idea that AMAT is going to do anything is laughable. Maybe in ten years. They sell undifferentiated equipment, which was an adaptation of chip gear. I believe that proprietary technologies and equipment are going to do better (FSLR, ENER, Nanosolar), otherwise they would already be buying AMAT equipment instead of continuing to expand with their own technology.
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NOWHEREMAN
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1499 Comments
Aug 23 03:19 AMThe Solar field is expanding rapidly. But the number of enthusiasts is the same. Those people who were going to be converted to the Technology have been converted. So the question becomes which stocks are going to survive because this is another Bubble.
They go up for no reason other than they have Solar in their names. The PE ratios, if they even have them, are astronomical. (not all, just most) For all of these companies to live up to expectations being built into them is equal to that of the DotCom era. It won't happen. To be sure, there will be winners but don't look for all of them to be. They are alternative energy plays. They go up/down depending on what Oil does.
Lets say there is a global recession, Oil drops to $80. Do any of you actually believe Wind or Solar stocks will move up inspite of a decrease in spending for alternative energy sources which cost more than their Oil counterparts. Especially in a country which does not have an energy policy. The Solar companies which have new Tech., usually have more expensive Tech which will save/produce more in the long run but installations will go to the Lowest Bidders. Spain has reversed course and Germany is about to; no more subsidies.
You can't expect all of these stocks to outperform just because the Current Climate is favorable. Take a look at all of the Corn Ethanol stocks. Remember the LNG fever that drove stocks like Chienere Energy ( LNG) to the stars? Look were it started, went and with Terminal in place, is now.
Solar Competition will heat up and prices of goods sold will come down, accross the board. The companies which survive will be the vertically integrated low cost producers. Look at Boeing, loved by everyone, went from $45 to $100 and down to $60 because it relied on external suppliers.
The vertically integrated Solars are in short supply. It would also benefit those who are in Countries with Energy Policies in place.
This is why I went with YGE, I don't look for it to double. I look for it to go up 400% from here.
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briando
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13 Comments
Aug 24 12:14 AM-
David White
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515 Comments
Aug 25 08:25 AM-
User 250817
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Aug 25 10:20 PM-
tessant
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175 Comments
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Aug 26 12:17 AMScott
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