Another day, another note on a Chinese solar stock. With the exception of SolarFun (SOLF – Last trade $9.69), I still feel that the market hasn't separated the winners from the losers in the Chinese solar crowd. Is Trina Solar (TSL – Last trade $47.12) a winner? Today's trading was very interesting, with TSL suddenly moving north and approaching its 50-day moving average.
I really like TSL as a momentum trade in the near-term. This looks like a stock that has had a nice pullback (unlike FSLR), and could benefit from the added momentum that will come on the back of the new U.S. energy bill being passed. But before we can discuss the possibility of playing TSL as a momentum trade, we need to be certain that the momentum won't be stunted by extended losses on U.S. stocks.
It has now become apparent that the more the Fed talks and the less they do, the better the outlook is for them. The bond market has been doing a lot of the heavy lifting for the Fed at this point, and the Fed probably won't have a need to increase rates as long as the inflation outlook remains in line. I feel that the most likely scenario is that the Fed will remain neutral but tone down its inflation language, and this will likely give a big boost to stocks.
For the near-term, the most pressing issue remains the potential spill-over effect of the Bear Stearns subprime fiasco. Will the subprime worries go away? Yes they will, and today's price action proves how markets have it wrong. Initially, investors were unconcerned about the impending disaster in subprime mortgages (the DOW went up by 130pts), only to be overtaken by such worries later in the day. There was no earth-shattering news reported today – only a report that Bear Stearns is trying to work its way out of the hole, and another noting that some of the subprime paper issued by Goldman Sachs was getting downgraded faster than everyone else’s paper. Today's trading was irrational and driven by fear.
The most likely scenario for the remainder of the week:
- Concerns over the subprime situation will pass
- The Fed will tone down its language on inflation because the bond market has done a lot of the heavy lifting for the Fed.
- U.S. stocks to have a broad-based relief rally
The above factors will push TSL through its 50-day moving average, a bullish development for the stock. Despite the heavy losses on U.S. stocks today, TSL was up by 1.09%, reinforcing the idea that the stock has momentum on its side.
Disclaimer: I do not own any of the stocks mentioned above. I don't own a solar panel.