Can Solar Bounce From Here?

As the energy space as a whole has taken quiet a beating this year solar has been no exception. I try to not get caught up in the debate over the implications of the drop in oil prices impact on the solar market and whether the demand drops as crude becomes cheaper. My focus is, as always, price action.

When looking at the Guggenheim Solar ETF ($TAN), price is currently testing a level that has acted as support over the last several years. Price has found buyers at $32 during the last couple of touches at this level, will price react the same this time as well?

I’ve highlighted the support around $32 for $TAN in the chart below as well as the double top that took place earlier this year at $50. What I also find interesting is the 200-week Moving Average. While it has declined over the last two years it’s has also provided a degree of support to price when the two have come in contact. The 200-week MA is just below our price support level and is also beginning to level off and rise higher.

Turning the focus to momentum… The Relative Strength Index (RSI), as shown in the bottom panel of the chart, is very close to reaching a ‘oversold’ reading which could draw some buyers in looking for a mean-reversion. If we were to look at the daily chart of $TAN we would see signs of a bullish divergence being created between the RSI indicator and price. This is accomplished by momentum putting in higher lows while price creates lower lows – a positive sign for a potential bullish price reversal.

TAN

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.