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published in Blogs
Sep 03, 2020

Correlation Between Oil and Solar has Broken Down in the Past Month

The price between oil and solar stocks is normally very highly correlated and it makes sense. When the price of oil rises, alternative energy sources see an increase in demand and solar stocks tend to rise as a result. Conversely, when oil prices fall, the price of solar stocks tends to fall. That correlation has broken down over the last month as oil prices have been grinding sideways with a small move to the upside. Solar stocks have exploded in the past month. The Invesco Solar ETF (TAN) has gained 26.2% in the past month while the price of West Texas Crude is only up 5.8%.

This separation in the performances of the solar stocks and oil prices came to my attention when I was looking at the Group Trends on Tickeron’s Screener. The Solar Theme has gained 61.31% over the past month and that is the third best performance behind the Generation theme and the Novel Medical theme. The solar theme has 13 stocks in it and that is a more concentrated group than the Invesco Solar ETF, thus the big discrepancy in the gains.

The overall gain has been influenced greatly by a huge gain in VivoPower International (VVPR). The English company has jumped almost 400% in the past month. Even though VivoPower has stood out, it isn’t the only one that has experienced a big move. Sunpower (SPWR) has jumped 92.5%, Sunrun (RUN) is up 52%, and Vivint Solar (VSLR) has gained 50%.

If we look at the ratings from Tickeron, the group gets a “buy” rating overall. As for the individual ratings there is one stock rated as a “strong buy” and 10 are rated as “buys”. There is one “hold” rating and one “sell” rating. The one “strong buy” is on JinkoSolar Holding (JKS). The only “hold” rating is on Canadian Solar (CSIQ) and the only “sell” rating is on NextEra Energy Partners (NEP).

Looking at the overall fundamental picture, the group doesn’t do all that well as a whole. The average Valuation Rating is poor at 72, the average P/E Growth Rating is below average at 67, and the SMR Rating is really bad at 79.

There are a few stocks that rank okay in the fundamentals and those are JinkoSolar that was mentioned earlier and SolarEdge Technologies (SEDG). Both of those stocks have two bullish indicators and two bearish indicators. Those are the only two stocks where the bearish signals don’t exceed the bullish signals, on the fundamental side of the equation anyway.

The technical picture is almost the exact opposite. There is only one stock, Clearway Energy (CWEN), that has more bearish signals than bullish ones—three bearish and two bullish. The biggest positive skew is on Sky Solar Holdings (SKYS) which has five bullish signals and only one bearish signal.

Two indicators in particular show bullish signals for a great number of the solar stocks. The AROON Indicator shows bullish signals on 12 of the 13 stocks while the Momentum Indicator shows bullish signals for nine of the 13. The MACD indicator isn’t bad either with eight of the 13 stocks getting a recent bullish signal.

With the price of West Texas Crude hovering between $38 and $44 per barrel over the last few months, the huge jump in solar stocks is incredibly impressive. It is also out of the ordinary to see such a decoupling. One thing that I kept thinking about, what will happen if oil breaks higher? If oil prices were to jump back up to the $50 to $65 per barrel range, the range for all of 2019, we could see another big jump in the price of solar stocks.

Alternative energy sources like solar have become more popular in recent years as the push for renewable energy sources has grown. That provides a certain amount of demand that I don’t think is going to go away, even if oil prices were to drop again. However, if oil prices were to break higher, the solar industry will likely see another big move to the upside.

Related Ticker: TAN

TAN's Stochastic Oscillator is staying in oversold zone for 5 days

The price of this ticker is presumed to bounce back soon, since the longer the ticker stays in the oversold zone, the more promptly an uptrend is expected.

Price Prediction Chart

Technical Analysis (Indicators)

Bullish Trend Analysis

TAN may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.

Bearish Trend Analysis

The Momentum Indicator moved below the 0 level on April 11, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on TAN as a result. In of 80 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .

The Moving Average Convergence Divergence Histogram (MACD) for TAN turned negative on April 12, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 45 similar instances when the indicator turned negative. In of the 45 cases the stock turned lower in the days that followed. This puts the odds of success at .

TAN moved below its 50-day moving average on April 10, 2024 date and that indicates a change from an upward trend to a downward trend.

The 10-day moving average for TAN crossed bearishly below the 50-day moving average on April 12, 2024. This indicates that the trend has shifted lower and could be considered a sell signal. In of 13 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .

Following a 3-day decline, the stock is projected to fall further. Considering past instances where TAN declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .

The Aroon Indicator for TAN entered a downward trend on April 16, 2024. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.

Fundamental Analysis (Ratings)

Fear & Greed

Notable companies

The most notable companies in this group are First Solar (NASDAQ:FSLR), Enphase Energy (NASDAQ:ENPH), SolarEdge Technologies (NASDAQ:SEDG), Canadian Solar (NASDAQ:CSIQ), SunPower Corp (NASDAQ:SPWR).

Industry description

The investment seeks to track the investment results (before fees and expenses) of the MAC Global Solar Energy Index. The fund will generally invest at least 90% of its total assets in the securities that comprise the underlying index. Strictly in accordance with its guidelines and mandated procedures, MAC Indexing LLC, has contracted with S&P DJI Netherlands B.V. to calculate and administer the underlying index, which seeks to track the performance of companies in global solar energy businesses. The fund is non-diversified.

Market Cap

The average market capitalization across the Invesco Solar ETF ETF is 3.95B. The market cap for tickers in the group ranges from 169.42M to 18.04B. FSLR holds the highest valuation in this group at 18.04B. The lowest valued company is MAXN at 169.42M.

High and low price notable news

The average weekly price growth across all stocks in the Invesco Solar ETF ETF was 6%. For the same ETF, the average monthly price growth was 15%, and the average quarterly price growth was 51%. ENLT experienced the highest price growth at 3%, while SEDG experienced the biggest fall at -15%.

Volume

The average weekly volume growth across all stocks in the Invesco Solar ETF ETF was 22%. For the same stocks of the ETF, the average monthly volume growth was 13% and the average quarterly volume growth was -39%

Fundamental Analysis Ratings

The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows

Valuation Rating: 68
P/E Growth Rating: 79
Price Growth Rating: 70
SMR Rating: 66
Profit Risk Rating: 86
Seasonality Score: -33 (-100 ... +100)
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