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Yola Edwards

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Blinded by the light

Yola Edwards

     

The energy revolution is in full swing as everyone's scrambling to find alternative fuel sources. Everything from nuclear, coal, wind, solar, hydrogen and biofuels stands a chance to assuage growing demand for energy, said Texas oilman T. Boone Pickens. Pickens is making a $2-billion (U.S.) gamble on a wind farm in Texas and also advocates harnessing solar energy. Indeed reports suggest that solar power leads the renewable energy sector for alternative energy solutions.

Although long-term benefits from alternative fuels appear to be overwhelming, initial conversion to solar energy is an expensive out of pocket proposition. But investing in the underlying equities involved in the sector at this time may also prove to be an expensive proposition. Technical charts indicate the past year's enthusiasm over the potential economic benefit to world economies provided through alternative fuel sources may already be reflected in the stocks. Thus caution is advised.

First Solar Inc. manufactures solar modules using an advanced thin layer of cadmium telluride (CdTe) solar cell to convert sunlight into electricity, significantly lowering solar electricity costs. First Solar unlike other companies doesn't need government subsidies to make money. That's because other companies use silicon based material that is far more expensive and complicated to produce than First Solar's proprietary product. Although other solar panels are more efficient the efficiency ratios between the two are narrowing as First Solar continues to improve its product.

According to NanoMarkets, a leading industry analyst firm based in Glen Allen Virginia, "the thin-film photovoltaics (TFPV) market will produce the equivalent of 26 gigawatts (GW) by 2015 and will generate well over $20-billion in revenues in that same time frame. This extraordinary growth rate is due in part to the rapid deployment of photovoltaics of all kinds, but also to the low cost, flexibility and manufacturing advantages associated with TFPV compared with the now dominant crystalline silicon PV. By 2015, NanoMarkets expects that TFPV will account for more than half of the world's production of PV."

First Solar's stock has been a high flyer since 2007, soaring from a low of $27.70 in May 2007 to a high of $317 in June 2008. Though currently trading at $279, the stock has some positive short-term technical signs. However, longer-term overriding indicators are exhibiting signs of negative divergence.

Since December 2007 the stock has been forming a rising wedge and more recently since April it has been forming a reverse symmetrical triangle. The 10-week MA at about $274 has been posing as a resistance level for the stock. A weekly close above that level could see the stock rally to $285-$295. Further enthusiasm could take the stock to a new high of $235, however the overriding longer-term technical patterns and indicators suggest rallies should be sold. Additionally, the MACD and RSI have diverged negatively issuing non-confirmations of the recent new highs further supporting the consolidation theory. Additionally, the weekly MACD is still issuing a sell signal. A weekly close below $253.65 would signal a potential breakdown and a close below $227.80 would confirm it. If that happens then the pattern's technical measurement would suggest a $155.15 over the ensuing six months, offering a new buying opportunity.

Another solar company, SunPower Corporation of San Jose, Caliifornia, designs and manufactures "high-efficiency silicon solar cells and solar panels based on an all-back contact cell design. SunPower's solar cells and panels generate electricity from sunlight for residential, commercial and remote power applications. Its proprietary all back contact silicon solar cell technology produces more power per square foot compared to conventional solar cells."

The company announced on July 10 that Florida & Light Co. (FPL) hired it to build two solarpower generating plants, one of which is expected to be the largest in the United States.

SunPower will design and build a 25-megawatt plant in DeSoto County, Florida to be completed next year and a 10-megawatt plant at the Kennedy Space Center, to be completed in 2010. FPL will own, operate and maintain the two plants, both of which require state regulatory approval.

The company said the "largest operating solar photovoltaic power plant in North America is currently the 14-megawatt installation located at Nellis Air Force Base in Nevada, also built by SunPower."

Technically, the share price also appears ahead of itself. While both the weekly RSI and MACD indicators are oversold, and the stock could rally to $81 first, investors may want to lock in profits at that time. The MACD is issuing a sell signal and a symmetrical triangle, which is part of a larger inverted bearish pennant pattern, appears nearing completion. A weekly close below $64.32 would signal a breakdown and a weekly close below $53.18 would confirm it. If that happens then a downside target of about $13.20 would be ahead of it.

Waiting for a pullback appears to be the way to play this sector.

Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.

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