Finally, A "Pure Play" ETF In The Solar Energy Sector

NOTE: Please click on the charts below to enlarge them if they do not appear clearly.

The main stock market indexes showed signs of life for the first time since breaking down below their 50-day moving averages on April 11. After opening slightly higher, stocks trended lower throughout the morning, but afternoon buying interest enabled the major indices to close the session near their intraday highs. The S&P 500, Nasdaq Composite, Dow Jones Industrial Average, and S&P Midcap 400 scored identical gains of 0.5%. Small caps outperformed, sending the Russell 2000 Index 0.9% higher.

Although yesterday's gains were only moderate, a solid increase in turnover pointed to buying among mutual funds, hedge funds, and other "big money" players. Total volume in the Nasdaq rose 18% above the previous day's level, while volume in the NYSE ticked 7% higher. This enabled both the S&P and Nasdaq to register a bullish "accumulation day." Nevertheless, it's important to note that trading still remained below 50-day average levels. Market internals recovered from ugly morning ratios to finish the day positive. In the NYSE, advancing volume exceeded declining volume by a margin of 2 to 1. The Nasdaq adv/dec volume ratio was positive by approximately 3 to 2.

We bought the pullback in PowerShares Clean Energy Fund (PBW) on Monday as a way to take advantage of recent strength we've been seeing in solar energy stocks. But even though this ETF includes several leading solar stocks such as First Solar (FSLR) in its underlying portfolio, it does not exclusively focus on the solar energy sector. Rather, its portfolio also includes other types of alternative energy companies such as coal producers.

Fortunately, we now have a choice for a more "pure play" in the solar energy arena -- the Claymore Global Solar Energy Fund (TAN), which began trading yesterday. Since this first ETF to focus exclusively on the solar energy field has only one day of trading history, there's no point in looking at its chart. However, those of you who follow the scorching hot solar energy sector may be curious to know the top underlying stocks of this ETF. As of yesterday, here are the top holdings of TAN (love the ticker symbol!):

Source: Claymore.com

As TAN develops a bit of trading history, we'll begin tracking its pattern and eventually add it to our trading arsenal. On its first day on the market, TAN traded approximately 100,000 shares yesterday. I expect its average daily volume to increase substantially as word gets around and the sector continues to grow in popularity.

The iShares Mexico Index (EWW), which we analyzed yesterday, did not yet trade above its hourly downtrend lines, but remains on our watchlist going into today. Since it's been trading in a tight, sideways range for the past three days, a rally above the three-day high would represent an ideal buy entry for partial share size, as that would also coincide with a breakout above the steeper of the two hourly downtrend lines we illustrated yesterday. The remaining shares of your EWW position could still be added above resistance of the more gradual downtrend line that began with the April 2 high (over the $61.50 area).

Yesterday's gains pushed the major indices to within striking distance of their 50-day moving averages. The Dow actually closed a few points above its 50-day MA yesterday, but the other main stock market indexes are still trading below their 50-day MAs. Expect the major indices to test this pivotal resistance level today, especially if the after-hours gap up from Intel's earnings report holds into today's open. If the broad-based indexes close the day firmly above their 50-day MAs, it will confirm our thinking that the new intermediate-term uptrend off the March lows is not dead yet.

Open ETF positions:

Long - PBW, INP

Short - (none)

NOTE: Regular subscribers to The Wagner Daily receive daily updates on the open positions above, as well as new ETF trade setups, including trigger, stop, and target prices. Intraday Trade Alerts are also sent via e-mail and/or mobile phone text message on as-needed basis.

Deron Wagner is the head trader of Morpheus Capital Hedge Fund and founder of Morpheus Trading Group (morpheustrading.com), which he launched in 2001. Wagner appears on his best-selling video, Sector Trading Strategies (Marketplace Books, June 2002), and is co-author of both The Long-Term Day Trader (Career Press, April 2000) and The After-Hours Trader (McGraw Hill, August 2000). Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. He is also a frequent guest speaker at various trading and financial conferences around the world. Wagner is currently working on this third book, scheduled for publication in early 2008.

For a free trial to the full version of The Wagner Daily above, which includes detailed ETF trade setups and daily position updates, or to learn about our other newsletters, visit morpheustrading.com or send an e-mail to deron@morpheustrading.com.

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