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Solar stocks are ready to heat up

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Over the past few months, solar stocks have had more than their fair share of ups and downs. Last month, they were so volatile it seemed as if I was writing an article about another solar play every other day, introducing investors to the sector by casting the characters in a fictional movie to be called Solar's Eleven, encouraging buying on breakouts in this article, and warning investors to drop them as if they were poorly selling music artists in this article. (Yes, I go over the top sometimes, but it's all to help you better understand how the stock market works.)

I know buy and hold investors don't understand how I can change my mind so quickly about the same companies, but as you can tell from the charts of stocks like Evergreen Solar (NASDAQ: ESLR), Solarfun (NASDAQ: SOLF), DayStar Technologies (NASDAQ: DSTI), Akeena Solar (NASDAQ: AKNS), Canadian Solar (NASDAQ: CSIQ) and China Sunenergy (NASDAQ: CSUN), remaining nimble is key to profiting from this sector's volatility. In fact, only JA Solar (NASDAQ: JASO) and MEMC Electronic Materials (NYSE: WFR) have managed to hold near their highs.

So, what changed? Perception. While these companies all still have great potential, they are speculative and in bear markets, speculative stocks, especially those that don't continuously put out spectacular news, get crushed -- as shareholders in Apple (NASDAQ: AAPL), Baidu.com (NASDAQ: BIDU) and VMware (NYSE: VMW) have learned the hard way.

Sure, oil and other commodity prices have dipped and even after dropping over 30%, stocks like First Solar (NASDAQ: FSLR) and Suntech Power (NYSE: STP) still sport some pretty hefty PE ratios, but you have to remember this is one fast growing sector. And, just to add to the fun, there's a new solar IPO with some seriously booming revenues and profits in Renesola (NYSE: SOL) that just yesterday debuted under the radar.

Since short sellers are sitting on some nice gains and will probably look to cover some of their positions before these companies report earnings in the coming weeks, I believe the time is right to jump back in here. Maybe not with both feet, but scaling into positions has always worked for me. I don't expect any of these stocks to go straight back to their highs-not in this market-but I do think these stocks will bounce solidly off their lows here.

Disclosure: Long SOLF.

Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund

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Last updated: November 06, 2009: 10:16 AM

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