The recent drawdown in US Equities since February looks nearly complete, and I expect the area at 3900-3930 to contain this decline into end of week before a March rally gets underway.
Technology’s strength has proven unwavering, with superb relative strength in the month of February, outperforming all other sectors.
Defensive sectors have been slowly but surely weakening, and breakdowns in Utilities on Tuesday (2/28) have now been followed by Real Estate ($EWRE) which violated a key uptrend line during Wednesday’s (3/1) session.
Cyclical lows should be in place to kick off the month of March, and I anticipate rallies back higher over the next 1-2 weeks. While the next couple weeks might prove choppy until a definitive top is in place for Treasury yields, this doesn’t look too far off.
As shown below, prices have moved lower from February peaks in very much a three-wave decline. This is significant as it shows this decline as very likely being a “corrective” consolidation pattern which should lead to movement back to new highs into March and/or April.
Cyclical composites show the next couple months to be choppy. Moreover, it’s expected that rallies should occur into 3/7 and then possibly 3/15. However, given that Yield cycle composites show a peak in mid-March, this might align with a low in Equities and turn back higher. I’ll be on alert for any evidence that the 80-trading day cycle for Equities is inverting.
The Hourly SPX chart with my interpretation of the current Elliott-wave count is below. The initial decline from 2/2/23 peaks is illustrated in red and shows a very pronounced three-wave move. This is one of the main reasons why I’m skeptical that prices pullback back down under 3900 in the near future, and the risk/reward is growing increasingly more favorable for SPX
First Solar’s earnings beat likely solidifies this stock as an outperformer within Solar Energy
First Solar ($FSLR) rose more than 10% on Wednesday following better than anticipated Sales and earnings, and it looks to be one of the largest beneficiaries of the Inflation Reduction Act which could help the company receive more than $700 million in tax credits.
Technically speaking, this stock has been a notable leader in relative strength within the various stocks that make up Solar Energy. Its 26.91% gains Year-to-date (YTD) put FSLR solidly within the top tier of performance within the 45 stocks which make up Invesco’s Solar Energy ETF ($TAN) and it’s also led on a 1 and 3 month basis.
Many investors might feel they’ve “missed the boat” after FSLR’s post-earnings surge on Wednesday. However, this monthly chart helps to put its recent gains into perspective.
As shown below, despite its recent strength, FSLR has barely recouped 60% of its decline from 2008 peaks and is rapidly closing upon its next major area of Fibonacci-based resistance near $200 which represents a 61.8% retracement level. Thus, this upward acceleration has literally just gotten underway since last Summer and doesn’t seem near conclusion.
While momentum has recently lifted back to overbought levels, its technical structure and momentum acceleration remain quite bullish, technically speaking. Wednesday’s (3/1) gains are happening on above-average volume and should help FSLR reach this 200 level without much trouble in the short run. Furthermore, dips are likely to prove short-lived and temporary before its intermediate-term rally continues to challenge prior peaks made in 2008 up near $317. Overall, FSLR is attractive technically despite being overbought. Those who prefer to await dips might look at $175-$185 over the next couple months as being support before its rise continues.
Solar Energy ETF ($TAN) looks appealing at current levels given Wednesday’s breakout
Another option for those seeking diversification within Energy outside traditional fossil fuel stocks is to consider TAN, Invesco’s Solar Energy ETF. This contains big weightings in stocks like $SEDG, $FSLR, $ENPH which represents nearly 30% of TAN’s 45 holdings by composition. .
As daily charts show below, TAN has just broken out of the minor downtrend since early February as part of a large choppy trading range over the last few months.
Following a three-week decline, a rally to new multi-day highs is a bullish development. I expect upside follow-through back to test recent highs.
If/when prices can exceed $85, this would help drive a much larger rally in TAN into this Spring. A weekly lose back over $85 would help this rally up to $100 and then larger targets near $125.
Overall, TAN is attractive at current levels and would grow more so on its ability to exceed $85.
Enphase Energy pullback looks complete
Following a very sharp decline from last November’s peaks that’s spanned more than 42% from peak to trough within the last four months, $ENPH has finally begun to stabilize.
Prices are nearly unchanged over the last four weeks after this sharp pullback, which has helped daily momentum to start to turn higher.
Additionally, prices look to have pulled back to an area near its intermediate-term uptrend, and daily momentum per MACD and RSI have both begun to show positive momentum divergence.
While price action very well could prove choppy between $212 and $250 over the next few months, it’s expected that a rally back up over $250 is likely this year.
Such a move should help drive an eventual move back to new all-time highs given its bullish weekly technical pattern. However, resistance should crop up near $275 and then $340 before a rally back to new all-time highs.
Overall, ENPH looks attractive here technically from a risk/reward standpoint.
Solaredge Technologies ($SEDG-$327.48) SEDG is the other heavy weighting in TAN, the Solar Energy ETF. As weekly charts show of price action over the last four years, prices remain largely range-bound after its substantial rally into 2021.
Technically speaking, tight consolidation ranges following a lengthy rally are normally quite positive and typically are resolved with rallies in the direction of the original breakout.
Despite this larger range being still very much intact, SEDG has begun to rally back to consolidation highs given this week’s gains to the highest weekly closing level since mid-2022. An upcoming test of the upper edge of this resistance looks likely, and it’s thought that this time around, it very well might not prove to offer as much resistance, yielding to a breakout.
Bottom line, downside in $ENPH looks limited and it’s right to be long and consider movement back over $346 as a breakout and something which should cause some above-average follow-through higher.
Overall, TAN, SEDG, and ENPH are all technically attractive here, but whether one chases FSLR at new monthly highs, vs attempting to buy ENPH after recent weakness all depends on one’s preferred style. $TAN helps to give diversified exposure to all these names, but each of these charts shows some reason for why the Solar stocks look attractive at current levels.