Ron Rolwand:  With Middle East tension driving oil prices higher, investors are again looking at alternative energy sources. ETFs that specialize in this niche have shown extreme volatility this  year … in both directions.

Today we’ll take a closer look at recent action in solar energy ETFs. As you’ll see, they’ve been all over the place in 2012. You could have made a fortune. Or you could have lost your shirt!

Solar Energy: Hot and Cold

I’ve mentioned solar ETFs before. Last fall I used Guggenheim  Solar Energy (NYSEArca:TAN) to illustrate The Difference between Cheap Price  and Good Value. We explored TAN’s surge above $300 and then its drop to $35.

(Note: TAN underwent a 1:10  reverse split on February 15, 2012, to raise its share price, so those pre-split  prices discussed in the article were a high above $30 and a drop to $3.50.)

The New Year brought  more fireworks for TAN shareholders. As of February 9, 2012, TAN had a  year-to-date return of 52 percent. Not bad … but this number includes two huge assumptions:

1. You bought TAN at the  12/30/11 closing split-adjusted price of $24.70.

2. You sold TAN at the  2/9/12 closing split-adjusted price of $37.60.

If your timing was off —  even a little bit — your result was probably quite different. As we know now, February  9 was the peak for TAN. Just this week, on March 6, the shares traded as low as  $26.

Now the net for the  whole period was still positive at +5.3 percent. Not great, but not bad for  just a little over two months.

My point here is that when you see an ETF climb 50 percent or more in just a few weeks, be aware it can fall just as far, and just as fast! You had to sit through a lot to get  that +5.3 percent return. Of course, if you bought TAN back on February 9, you  are now staring at a 30 percent loss.

What Would  You Do?

Let’s dig a little deeper into the assumptions I mention above. Did you, or did anyone you know, buy TAN in late December?

Apparently not. Volume  was quite low that last week of 2011. TAN’s weekly trading totaled 191,297  shares. At an average price of $25, the value traded was less than $5 million —  a drop in the bucket for today’s global markets.

Why was no one  interested? Maybe because TAN, after hitting a split-adjusted high above $81  early in the year, spent most of 2011 losing value? The solar trend was not  your friend.

Is Solar a Profit Opportunity?

Where is TAN going from here? I really can’t say. Some very smart people think solar energy stocks have  huge potential, especially if oil prices stay high. If so, TAN could be a good  way to get involved. Ditto for the very similar Market Vectors Solar Energy (NYSEArca:KWT). [Related: Trina Solar (NYSE:TSL), First Solar (NASDAQ:FSLR), JA Solar Holdings (NASDAQ:JASO)]

My Weiss Research  associate Sean Brodrick has studied this sector closely. Right now he isn’t  super-bearish on solar. He just sees better opportunities elsewhere.

(For a good summary of  Sean’s thoughts, read his February 16 column, Inconvenient truths about alternative  energy.)

For my part, I look at  TAN the same way I look at most ETFs: Sometimes you want to be in it, sometimes  you don’t. The hard part is knowing the difference!

What makes success even  more elusive is that we have no universal traffic signal. You seldom know if  any particular ETF is on red, yellow, or green.

I have two answers to  this dilemma. They are:

• Risk-adjusted Momentum, and
• Relative Strength Ranking

I look at an ETF’s current  and historic volatility vs. appropriate benchmarks. Then I compare ETFs against each other. Ranking them helps  me identify the best opportunities for my International  ETF Trader members at any given point in time. While many could have a  green light, some are probably greener than others.

Whatever your method, chasing  super-volatile ETFs higher — and buying those in the bargain basement — is  rarely successful. The keys to success are consistency and discipline. Add them to your  strategy and watch your results improve!

Best wishes,

Written By Ron Rowland From Money And Markets

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss  along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson. To avoid conflicts of interest, Weiss Research and its  staff  do not hold positions in companies recommended inMaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not  guaranteed. Performance returns cited are derived from our best  estimates but must be considered hypothetical in as much as we do not  track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene  Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam  Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle  Zausnig.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss  Research analysts offering the latest investing news and financial  insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view  archives or subscribe, visit http://www.moneyandmarkets.com/.

NYSE:KWT, NYSE:TAN