First Solar (FSLR) reported earnings after the close yesterday, and the shares are selling off on the news.

First Solar Inc., the nation’s largest solar panel maker, said on Wednesday that its third-quarter profit jumped almost 55 percent on higher revenue. But revenue fell well short of analyst expectations because of a contract that wasn’t signed until the current quarter, sending shares tumbling in late trading.

The company said it earned $153.3 million, or $1.79 per share, for the quarter that ended Sept. 26. That was up from $99.3 million, or $1.20 per share, during the quarter that ended Sept. 27, 2008.

Revenue rose 38 percent to $480.9 million from $348.7 million a year earlier.

Profit topped the $1.74 per share that analysts surveyed by Thomson Reuters were expecting, but revenue was shy of the $528.8 million average estimate.

Looking at the chart two minutes after the market open, we can see price has fallen 17% on the news, and is now trading below the 50 and 200 day moving averages. Even before the earnings news, the chart was clearly in a bearish orientation, with lower highs and lower lows.

To be clear, solar, and clean energy in general, is very likely a good investment in the very long term. For now, however, the trajectory of most solar stocks is toward the downside. In most cases we can see a series of lower highs and lower lows, with price trading below key moving averages.

Moreover, the broader market is showing some serious cracks this week. Certainly the market could bounce from here and continue in its rising trend. At the same time, investors should take note that this week’s dollar rally could signal an intermediate-term bottom for the greenback. For now, the eyes of traders are fixed firmly on the dollar. With the global carry trading hinging on the dollar, traders borrow dollars at a low interest rate to seek higher return in riskier asset classes such as equities and commodities. A rising dollar negates some of the advantage of the carry trade, and also signals that traders are becoming more risk averse.

Relative to the dollar and the equity markets, the US government cannot follow a quantitative easing, ultra-low interest rate policy forever. Bill Gross at PIMCO thinks equities are near a top:

“Investors must admit that without the policy guarantees of the Fed, Treasury, and FDIC, as well as the continuation of punitive 0% short-term rates that force investors to buy something, anything, with their cash, that risk spreads may widen again, not stabilize,” Gross wrote. Read Gross.

He said the six-month rally in risk assets “is likely at its pinnacle.”

Given the action of the past few days, we are probably due for an oversold bounce. I will be using any bounce to scale out of existing long position, and to increase my short exposure. It is probably premature to call an end to the rally, but caution levels should be raised given the past week’s action.

Coming back to the solar sector, we also can see that solar stocks generally have underperformed the market throughout the seven-month rally. FSLR has been trending lower since May. Sunpower (SPWRA) also sold off after earnings last week and has not participated in the current rally at all.

- Suntech Power Holdings (STP) has traded sideways since April. Price has been trending steadily lower since August, and is sitting on the edge of a cliff in terms of technical support. A break below 12.15 would be highly bearish, and would signal an excellent short entry.

- Solarfun (SOLF) has been trending lower since June, has already broken key support, and is a short on strength.

The only solar stock I find remotely interesting as a long trade is Energy Conversion Devices (ENER). This is still a risky, bottomfish type of play. Still, it is showing some signs that it has bottomed, with plenty of volume on the buy side during the past two months, showing that somebody is accumulating the stock at these levels. If the broader market regains its footing during the next week, ENER could provide some opportunities. A break below 10.00 would negate any of the bullish technical factors, and signal a short entry.

Tags: carry trade, clean energy, ENER, FSLR, solar, SOLF, SPWRA, STP

This entry was posted on Thursday, October 29th, 2009 at 10:05 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.