By Nick Hodge

Going over the numbers from the last few days, it's easy to become a bit manic. Even the best solar stocks have taken about a 10% hit over the last four trading days.

There's a legion of reasons for the fall. And, once you understand them, it's possible to make a killing on the resurrection of solar stocks.

The overarching reason for the fall is the same impetus that sparked chaos in the rest of the market: a government bailout (so much for free markets, right) of Freddie Mac and Fannie Mae, followed by the now well-documented issues at Lehman (NYSE: LEH) and Washington Mutual (NYSE: WM).

That's the broad reason for the stock market's recent plunge.

On the solar side of things, there are some other, nuanced catalysts for the drastic downturn, most of which are unknown to retail investors.

The reason for the massive solar sell-off over the last few days is news that there could be an oversupply of panels in 2009, which would drive the price down, resulting in lower margins and revenues.

After an industry conference in Valencia, Spain last week, many solar manufacturers cited a 5-10% decline in prices over the next year. However, most of the companies said demand will remain healthy.

But there are some variables that aren't being discussed...

Solar Stock Drivers

The most obvious aspect and one that's not being discussed, is the all-but-certain extension of the federal solar energy investment tax credit (ITC). Fears that this vital piece of policy won't come to fruition have certainly weighed on traders' minds, adding to the already negative pressure on the sector.

Thing is, the credit will be extended.

A note from Piper Jaffray analyst Jesse Pichel this morning had the following to say about the situation:

• Expect several energy bills to be introduced over next few weeks that all include solar ITC extension.

• We remain optimistic that political pressures may allow solar support to gain momentum.

• If above mentioned bills fail there appears to be support for at least a one-year ITC extender at which time the new administration would likely introduce a more comprehensive energy bill with solar support.

Mark my words. The day the solar ITC is extended is the day numerous solar companies surge 25% or better. And I have a feeling that day isn't too far off.

Another solar variable that has been glossed over is the feed-in tariff debate currently happening in Spain.

For those of you who don't know, a feed-in tariff is what Germany used to initiated its now world-leading solar program. A feed-in tariff forces a utility to buy excess electricity generated from solar systems at a higher rate than retail electricity. After the industry is established, the feed-in tariff is weaned.

This model worked beautifully in Germany, which is now the model solar market.

Spain has also had a successful feed-in tariff. So successful, in fact, that the government wants to cut the amount of eligible solar systems by more than 66%, from 1 GW per year to 300 MW per year—a drastic cut, to say the least.

But the Spanish Energy Ministry submitted a draft proposal yesterday calling for a 500 MW cap on projects available for the feed-in tariff.

The official decision won't be made until October, but the indication is that the Spanish market won't be as weak as expected, so investors should start to regain confidence in the companies that have a major stake there, including Yingli Green Energy (NYSE: YGE)

Germany for its part, resisted cutting its feed-in tariffs last December, delaying the decision until 2010.

Solar Stock Guidance

What you should be doing is picking up some of the best solar stocks on the cheap, especially the big boys in anticipation of the return of favorable conditions.

SunPower (NASDAQ: SPWR) around $80 and Suntech (NYSE: STP) around $40 are incredible bargains.

LDK Solar (NYSE: LDK) is also ripe for a nice move, after announcing an 11-year deal with industry leader Q-Cells (XETRA: QCE) for the processing of solar-grade silicon.

Other solar stocks that have been knocked down a few pegs are:

• JA Solar (NASDAQ: JASO)

• Trina Solar (NYSE: TSL) and

• ReneSola (NYSE: SOL)

That's how the solar situation is shaping up. Be sure to get some shares now, while they're still trading at an incredible discount.

For more guidance on solar stocks, and all things alternative, check out the Alternative Energy Speculator. That group of savvy investors is always ahead of the renewables' curve.

Join today, and you'll get a copy of the new book Investing in Renewable Energy: Making Money on Green Chip Stocks.

Call it like you see it,

Nick