Is the sun setting on solar stocks?

On June 28th, I wrote about how much I loved the chart of TAN, the Guggenheim Solar ETF. Since that posting, TAN rose by almost 80% to a peak price of near $42 before pulling back to its current level of $34-$35.

Source: Stockcharts.com

With the gain at just under 50%, prudence dictates unloading half the position given the weight of the evidence or the chart's risk/reward skew. 

On the negative side, during October and November the ETF made a few attempts at climbing higher than $42 only to fail and give way to its current level, breaking down through the 50-day MA in the process. Price has rallied a bit over the last few days, but the action is weak today and my fear is another shoe could drop. The next area of support is approximately $28, which is where the 200-day MA meets the prior highs established in the summer. I would also add that volume inflated at peak prices ($40-$42) and spiked again when TAN retreated earlier this month -- possible signs of a blow-off top.

However, TAN also has several positives. For one, price continues to be in a longer-term uptrend as evidenced by the 200-day MA. It's also encouraging to see price holding at the intersecting trend lines (blue). In addition, the ETF is one of the better performers on the year, up well over 100%, and vehicles with such stellar returns and inherent price momentum typically don't roll over and abruptly die. Instead, many an investor looks at such near-term price weakness in a longer-term winner as an opportune time to enter, to hopefully get on board for the next leg up. Whether or not that next leg higher materializes is not the point; rather it's psychology and public perception that ultimately is a key reason for why such high-fliers hang in there quite well during corrections. The high longer-term momentum behind TAN bodes well for continued gains given thrust has follow-through effects, but even if October-November was the top for solar stocks in general, there should be time to better assess this matter in the days ahead.

All of that said, I always stress prudence, discipline and risk control first and foremost and since the evidence appears to be mixed, taking some but not all gains appears to be the sensible decision at this point.