Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Companies that supply product to solar manufacturers, and even manufacture modules themselves, are exploding higher today on hopes for the industry and a short squeeze in the market. Shares of Hanwah SolarOne
So what: Good news from the solar industry has been rolling out for weeks, rallying the solar market. First, Germany installed 3 GW of modules in the fourth quarter, then reports came out that China and U.S. are experiencing robust demand as we enter 2012. That has bought out buyers and was eventually going to cause a squeeze among short-sellers. That appears to be exactly what's going on today with volume up more than five times the daily average for some stocks.
Now what: The question now is: How long will the rally last? Earnings haven't started coming in yet, and we don't know just how well suppliers did. The market is betting that a terrible third quarter was followed by a much stronger fourth quarter -- as top tier suppliers used up their own polysilicon and cell, leaving companies like Renesola, LDK Solar, and JA Solar to pick up the slack in supply. These companies may have also seen a pickup in demand for modules if demand was high enough for top-tier suppliers to sell out.
The stocks mentioned here might rally more than top-tier suppliers in the short term, but I would still take quality over these riskier stocks in today's solar market. SunPower, Trina Solar, and Yingli Green Energy would top my list and would be better picks than buying these stocks on a rally in the solar market.
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Fool contributor Travis Hoium owns shares of SunPower and manages an account that owns shares of SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.
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