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Living Dangerously In Solar Stocks

When it comes to the stock market, bottom fishing can be a dangerous game.

Once momentum takes hold, particularly downward momentum, it can continue well past the point where logic is the defining factor. Despite that, though, it was what I was trained to do. Life in a dealing room is about seeking opportunity and taking risk in a controlled manner and there is no denying that when prices are falling there is opportunity. The rewards for a contrarian trade are such that, providing you can cut for a relatively small loss if things don’t pan out, it is worth taking a shot, or even repeated shots, at finding the bottom.

In general, in order to have a logical level at which to set a stop loss to limit the downside to such trades, however, you have to wait for at least a small bounce before jumping in. That way, by setting a stop to protect against a renewed push downwards, you can participate in any sustained recovery without risking too much. That, in turn, enables you to try several times to find the bottom of a sustained move. It is not a strategy for the faint of heart, nor for somebody whose emotions can get the better of them. Taking losses, even small ones, is no fun.

With that in mind, for those not opposed to taking a risk, the required “drop and bounce” pattern is present right now in the solar power sector. It is probably best demonstrated by an ETF for the industry in general, such as the Guggenheim Solar Fund (TAN).

As…

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