Daqo New Energy Plummets 12.5%: What's Fueling the Selloff in Solar Sector?

Summary
• Daqo New Energy (DQ) plunges 12.47% intraday to $25.55, its lowest since 2024
• Analysts' average price target of $25.99 implies 13.5% downside from current levels
• Solar sector lags as semiconductors and metals & mining drag broader markets

Daqo New Energy’s sharp intraday selloff has drawn attention amid a broader market rotation out of renewables. The stock’s 12.47% drop to $25.55—a 3.64-point decline from its $29.19 close—has pushed it closer to its 52-week low of $12.405. With the solar sector under pressure and analysts’ consensus pointing to further downside, the move raises urgent questions about near-term catalysts and strategic positioning for traders.

Sector-Wide Weakness and Analyst Downgrades Trigger DQ’s Freefall
Daqo New Energy’s intraday collapse aligns with broader sector weakness, as semiconductors and metals & mining fell 1.8% and 2.2%, respectively. The stock’s 10.2% decline in Thursday trading—highlighted in sector laggard reports—reflects a flight to safety amid tightening monetary policy and waning investor appetite for high-growth renewables. Analysts’ recent downgrades, including Goldman Sachs’ neutral-to-sell shift and New Street Research’s $15.40 price target, have amplified bearish sentiment. The stock’s -7.87 P/E ratio and -13.48% projected downside from the $30.03 consensus price target further underscore its vulnerability to macroeconomic headwinds.

Solar Sector Mixed as First Solar Gains 2.07%
While Daqo New Energy tumbles, sector leader First Solar (FSLR) defies the trend with a 2.07% intraday gain. This divergence highlights divergent investor sentiment within renewables: FSLR’s strong balance sheet and recent project wins in the U.S. solar boom contrast with DQ’s exposure to China’s overcapacity risks and global demand slowdown. The solar sector’s 1.8% decline as a group underscores broader concerns about near-term profitability, particularly for firms reliant on Chinese manufacturing and export dynamics.

Bearish Setup: Options and ETFs to Capitalize on DQ’s Volatility
• RSI: 29.38 (oversold)
• MACD: -0.61 (bearish), Signal Line: -0.27
• Bollinger Bands: $25.31 (lower band), $34.93 (upper band)
• 200D MA: $22.81 (below current price)

Daqo New Energy’s technicals paint a bearish near-term picture. The stock is trading near its 200-day moving average and within the lower Bollinger Band, suggesting oversold conditions. With RSI at 29.38 and MACD in negative territory, short-term momentum favors sellers. The 2026-01-16 options chain offers two high-conviction plays: DQ20260116C25 and DQ20260116C26, which balance leverage and liquidity. These contracts offer 55.85% and 61.50% price change ratios, respectively, with implied volatilities of 108.09% and 99.41%, reflecting heightened market uncertainty.

DQ20260116C25 (Strike: $25, Expiry: 2026-01-16):
• IV: 108.09% (high volatility)
• Delta: 0.585 (moderate sensitivity)
• Theta: -0.153 (rapid time decay)
• Gamma: 0.090 (high sensitivity to price swings)
• Turnover: 3,186 (liquid)
• Leverage Ratio: 12.77%
• Payoff at 5% Downside: $0.25 (max(0, 24.27 - 25))
This call option is ideal for aggressive bulls expecting a rebound above $25. Its high gamma and moderate delta position it to benefit from sharp price swings, while the 108.09% IV reflects elevated volatility.

DQ20260116C26 (Strike: $26, Expiry: 2026-01-16):
• IV: 99.41% (moderate volatility)
• Delta: 0.487 (balanced sensitivity)
• Theta: -0.139 (moderate time decay)
• Gamma: 0.100 (high sensitivity)
• Turnover: 8,945 (high liquidity)
• Leverage Ratio: 18.37%
• Payoff at 5% Downside: $0.25 (max(0, 24.27 - 26))
This contract offers a more conservative entry point with strong liquidity and gamma. Its 99.41% IV and 18.37% leverage ratio make it a compelling choice for traders anticipating a rebound from oversold levels.

Action Alert: Aggressive bulls may consider DQ20260116C25 into a bounce above $25.55, while DQ20260116C26 offers a safer entry with higher liquidity. Both contracts are well-positioned to capitalize on a potential reversal in the 200-day MA support at $22.81.

Backtest Daqo New Energy Stock Performance
The backtest of DQ's performance after a -12% intraday plunge from 2022 to the present reveals a significant underperformance. The strategy's CAGR is -3.92%, with a total return of -14.49% and an excess return of -60.91% compared to the benchmark return of 46.42%. This indicates that while the strategy avoided a maximum drawdown of 0.00%, it failed to capitalize on broader market gains, resulting in a Sharpe ratio of -0.06 and a high volatility of 66.86%.

DQ’s Freefall: A Short-Term Opportunity Amid Long-Term Uncertainty
Daqo New Energy’s 12.47% intraday drop reflects a confluence of sector-wide weakness, analyst downgrades, and macroeconomic pressures. While the stock’s technicals suggest a near-term oversold condition, the broader solar sector’s struggles—exemplified by First Solar’s 2.07% gain—highlight divergent investor sentiment. Traders should monitor the 200-day MA at $22.81 and the 52-week low of $12.405 as critical support levels. For now, the DQ20260116C25 and DQ20260116C26 options offer high-conviction plays to navigate the volatility. Watch for a breakdown below $25.31 or a reversal above $27.29 to determine the next directional move.