A Major Tipping Point
“Oh what a difference a weekend makes,” Barron’s noted as the market snapped back to life Monday morning…
“Yes, the market bounced back on Friday, but that had the feel of late-week position squaring. The Huawei decision took one big risk off the table in the trade war.” The financial mag continues. “China, meanwhile, said it would change how it computes its loan prime rate in order to ‘lower real lending rates,’ a sign that it is trying to get boost its slowing economy. And if that weren’t enough, German Finance Minister Olaf Scholz said that his country was prepared to spend $55 billion to boost Europe’s economy if necessary.”
This flurry of good news — which has somehow remained uninterrupted by a rogue tweet or trade war rumors — has helped the major averages stabilize after a volatile start to August trade.
The market finally marched higher with a little pep in its step on Monday, building on Friday’s gains and helping the Dow and S&P 500 push to their third-straight day of gains.
But make no mistake: the market’s not out of the weeds just yet. The S&P must contend with its 50-day moving average, which just so happens to be where the large-cap index failed to rally earlier this month.
I’m not ready to get too bullish just yet. August has been a difficult, volatile month for stocks. Let’s just see if we can make it to Labor Day without any new catastrophes popping up…
While all eyes are on the U.S.-China trade war, I stumbled upon some interesting news out of Asia that hasn’t gained much traction just yet…
“Solar energy in hundreds of Chinese cities is now cheaper than electricity supplied by the national grid, and it can even compete with coal-fired power in 75 of them,” per CNN.
According to the report, almost 350 Chinese cities are cranking out solar power and offering ultra-low rates for their troubles. We can trace this monumental progress in solar capacity to China’s $365 billion investment in renewable energy enacted back in 2017.
Pictures of smoggy cities throughout China have earned the Asian nation the reputation of a serial polluter. But perhaps its funding of solar, hydro, and wind projects can help shed the stigma.
Even factoring in recent renewable investments, 59% of the country’s energy still comes from burning coal, according to Reuters. The Chinese still have a long way to go to cut these emissions.
More importantly, the market is whispering that we might be on the cusp of a major tipping point in the solar energy market. Solar stocks are quietly outperforming the averages even as volatility spikes this month — and not just by a few measly points, either. The Invesco Solar ETF (NYSE:TAN) is up an incredible 65% year-to-date, compared to a respectable 20% gain in the Nasdaq Composite.
TAN gapped higher Monday and finished the day up almost 3%. It’s now less than a buck from its highs.
That’s a welcome change from the sector’s performance during last year’s fourth-quarter meltdown. During the second half of 2018, TAN managed to drop a disastrous 30% in just five months to new 52-week lows.
At the time, I noted solar stocks were deeply oversold as they rocketed off their November lows. A quick rally set up an attempt to break free from a nasty downtrend that had trapped TAN since late May.
Unfortunately, these stocks weren’t immune to the December selloff. But when the dust cleared, TAN bottomed out and immediately ripped higher in January. Solar stocks commanded my full attention by late February as TAN rocketed to a year-to-date gain of 35%.
That’s when we first hopped onto our First Solar Inc. (NASDAQ:FSLR) trade. The company had just reported earnings, missing analyst expectation and cutting its full-year gross margin forecast. But the stock rallied on the bad news, giving us the green light to get in as the stock popped back above its 200-day moving average and prepared to attack resistance near $55.
Shares are solidly above $60 now as FSLR recovers from its August slide. And thanks to TAN’s strength, we have a chance to add the ETF to our stable of longer-term positions today. This extended solar rally is just getting started…