Canadian Solar Inc., SunPower Corporation Hit By Sector Headwinds

Just a day after catching fire, solar stocks are struggling on disappointing guidance from First Solar, Inc. (NASDAQ:FSLR). In particular, two names feeling the heat are Canadian Solar Inc. (NASDAQ:CSIQ) and SunPower Corporation (NASDAQ:SPWR).

CSIQ was down more than 2% earlier, but has since pared its loss to 0.3% to sit at $23.56. However, this is an unusual showing for a stock that's surged over 39% since the start of October. Even today's losses are being contained by the solar issue's 32-day moving average.

The technical outperformer has won support on Wall Street. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CSIQ has racked up a 50-day call/put volume ratio of 3.19 -- higher than four-fifths of the readings taken in the past year. If that's not enough, 100% of covering analysts consider the stock a "strong buy."

That's not to say skepticism is totally absent. In fact, 15.2% of Canadian Solar Inc.'s float is sold short. In fact, some of the recent call buying -- particularly at out-of-the-money strikes -- could indicate hedging by the shorts. If the shares can resume their longer-term uptrend, a short-squeeze situation could materialize, sending them even higher.

Turning to SPWR, the stock is off an even sharper 2.7% at $22.42. Since December started, the shares have retreated over 6%, and are on track for their lowest close since mid-November.

Suffice it to say, option bulls may be starting to get rattled. SPWR's 10-day ISE/CBOE/PHLX call/put volume ratio checks in at 4.89, with nearly five calls bought to open for each put. What's more, this ratio sits 7 percentage points from a 12-month high, indicating a stronger-than-usual preference for bullish bets over bearish.

Again, though, some of the recent affinity for long calls could be attributable to shorts looking for protection. Short interest on SPWR grew 15.6% during the past two reporting periods, and now accounts for 12.3% of the stock's total available float.

Likewise, optimism among the brokerage crowd could soon start to wane. Of the 13 analysts following SunPower Corporation, 10 have handed out a "buy" or better rating, compared to three "holds" and not a single "sell." From a contrarian perspective, this underperforming stock looks vulnerable to additional losses going forward as the positivity starts to sour.