Solar stocks have taken a beating over the last month, but traders say now may not be the best time to buy the dip. Here’s why.
Solar stocks surged when President Joe Biden was elected back in November, but have been struggling over the last month.
The TAN Solar Invesco ETF is down 30% since closing at a new high on February 9 after surging more than 250% over the year prior.
TAN’s holdings aren’t doing so hot either. SolarEdge (NASDAQ: SEDG) is down more than 13% over the last month, First Solar (NASDAQ: FSLR) is down more than 8%, SunPower (NASDAQ: SPWR) is down nearly 19%, and JinkoSolar (NYSE: JKS) is down 17% over the last month.
But even with solar names down substantially, traders say it may not be time to buy them yet.
Piper Sandler chief market technician Craig Johnson says that even with TAN down 30% since February, the ETF may still be too overextended given that it’s still up nearly 300% since the market bottom last March.
“Only three times, going back over the last 30 years, have I seen the 26-week price momentum in some of our work get as high as it is right now,” Johnson said. “Once we’ve seen those sort of high levels, it’s rolled over and the group has corrected for typically around three years before you find your next sustainable entry point.”
“I’d be selling… not trying to buy it yet, it’s too early,” Johnson added.
Simpler Trading’s Danielle Shay argues, however, that the decision to buy solar stocks depends more on an investors timeframe.
“I think it all depends on your time frame,” Shay said. “In the short-term time frame, the charts have shifted, and they’re definitely in a downward pattern. With TAN in particular, I can see it falling as low as about $70.”
The TAN ETF is currently trading over 20% above the $70 range Shay is targeting.
But for investors looking for a longer-term investment, solar stocks have a bright future.
“In the next five to 10 years, this is an area that’s going to continue to grow,” Shay said. “For long-term investors looking for an entry place, I think it’s a great spot to start looking.”