Are Solar Stocks Doomed This Quarter?

Solar stocks have fared poorly in the fourth quarter, especially Trina Solar Limited (ADR) (NYSE:TSL) and JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO)

Oct 2, 2015 at 2:44 PM
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Yesterday, we looked at the consumer staples sector, which has traditionally outperformed in the fourth quarter. Today, we'll shift our focus to break down one of the worst-performing groups of stocks: solars. The sector -- as expressed in the Market Vectors Solar Energy ETF (NYSEARCA:KWT) -- ranks dead last in average fourth-quarter returns over the past 10 years, according to the chart below (which comes courtesy of Schaeffer's Senior Quantitative Analyst Rocky White).

By the numbers, KWT has been positive just twice in the fourth quarter, since it became available in mid-2008. Moreover, the exchange-traded fund's (ETF) typical quarterly loss is 12.2%.


Digging deeper, White broke down the performance of the eight U.S.-listed components in KWT, seen below. The two laggards that really stand out are Trina Solar Limited (ADR) (NYSE:TSL) and JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO).


TSL has given up ground in six of the past eight third quarters, with an average drop of 6.2%. This year, the shares are off to a good start, thanks to today's 5.4% pop to trade at $9.41 -- amid some encouraging news from one sector peer -- though they've still given back 29% since topping out at an annual high of $13.33 in late April.

Amid TSL's longer-term pullback, bearish betting has picked up. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has amassed a 10-day put/call volume ratio of 0.76 -- ranking in the top quartile of its annual range. Along similarly bearish lines, 17.2% of the stock's float is sold short, representing eight times its average daily trading volume.

Meanwhile, JASO is up 4% today at $8.24, bringing slightly above its year-to-date breakeven mark. CVI Investments provided an upward catalyst, announcing a 9.9% passive stake in the solar firm. If past is precedent, today's advance could be tough to hold on to. The stock has posted fourth-quarter declines in six of the prior eight years, with an average loss of 4.3%.

That hasn't stopped option traders from buying to open calls over puts at a breakneck pace on the ISE, CBOE, and PHLX. Specifically, JASO's 10-day call/put volume ratio rests at a top-heavy 26.00, which ranks in the 83rd percentile of its annual range. With 12.5% of the stock's float sold short, though, some of this activity could be a result of short sellers hedging their bearish bets.

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