The bearish view is that the stocks, while certainly badly beaten up in recent months, still must endure a period of tighter credit, collapsing prices, too much supply, a stronger dollar and strapped governments pulling back on subsidy programs. The bears argue that solar valuations are low in part because the market is adjusting to low-margin commodity pricing; P/E multiples on forward numbers are low in no small measure because there is no confidence that the estimates for next year and beyond can be met.

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Several analysts have followed up the news with comments on what the news means for the state of the industry; here are a few key takeaways:

Mehdi Hosseini, an analyst with Friedman Billings Ramsey, asserted that he expects other solar companies reporting over the next few weeks to similarly miss forward earnings expectations. Hosseini notes that JASO on its post-earnings conference call characterized the current industry dynamic as “complete panic.” He reports that the company sees selling prices in 2009 down at least 20 percent, while margins are coming down even faster than that. Hosseini notes that the company is trying to renegotiate its poly supply contracts to lower pricing. He also points out that JASO has shut 40 percent of its production lines for now.

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Solar stocks, which have been rallying strongly for two days in anticipation of an Obama win, this morning have sharply reversed course, due in part to an ominous earnings warning related to the stronger dollar from SunPower (SPWRA).

Late yesterday, SunPower said in a statement that the strengthening of the dollar against the Euro is expected to “reduce earnings growth” in both the current quarter and all of fiscal 2009.

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While the broad market has staged a stunning rally today, solar stocks are nonetheless dramatically outperforming.

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Molnar asserts in a research note that the risk of oversupply in the solar market “will soon become a reality as considerably less generous demand subsidies take hold just as a wave of supply and tight financing hit the market.” He thinks that “liberal subsidies of the past in markets like Germany and Spain are unlikely to be replicated in the future given fears of their ultimate cost in a bad world economy.”

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Just yesterday, the ever-volatile solar stocks staged a nice rally, while investors celebrated as the Senate tacked an eight-year extension of the solar investment tax credit onto the incredibly bloated financial bailout bill, which passed last night by a wide margin. The bill now goes over to the House. If approved in its current form, the bill would extend the current 30 percent tax credit for solar panel installations through 2016. That would be a relief for the domestic solar industry, which has been fretting for months about the possibility that the credit might not be renewed when the current credit expires at the end of this year.

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While quick House approval would be nice, it might not play out that way. Citigroup analyst Timothy Arcuri notes in a research piece this morning that approval in the House could drag into November, in part because the solar tax credit extension is longer than the bill’s one-year extension for wind-related credits and two years for other renewable energy sources. “We don’t think that distinction was broadly expected,” he writes.

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But you might think otherwise, judging from this week’s action in solar stocks. The sector, which suffered considerable losses yesterday, today went into freefall, with many names in the sector suffering losses of more than 10 percent. Exactly why investors decided to bail on the stocks today is unclear, but there are a number of factors that appear to be contributing to the current solar scare.

Lehman analyst Vishal Shah wrote a note on the solar sector that, in general, was quite bullish and, in fact, repeated his recommendations on First Solar (FSLR), SunPower (SPWR), Suntech (STP) and JA Solar (JASO). But Shah also noted that most solar companies have provided “somewhat aggressive guidance” for 2009 on the assumption that poly supply would become readily available from the spot market or silicon partners.

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Richard Keiser, technology strategist at Bernstein Research, wrote this morning that an “astounding number” of solar panel companies demonstrated products at the show–and offered aggressive expansion plans. He says that suggests fears of commoditization and oversupply “are well founded.”

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