FSLR Sell-Off Expected, Reducing Risk
Four weeks ago in my weekly newsletter EPIC Insights, I highlighted First Solar (FSLR) as an ideal stock to buy. I felt the markets were preparing to move higher and that solar companies would be beneficiaries of the Obama administration’s efforts to foster an alternative energy industry. Also, most importantly, a review of FSLR’s chart showed clear technical patterns that pointed to a move higher.
Reviewing the prior 18 months, FSLR moved higher in a fan pattern (A, B, and C), cascaded to a low that surrendered the entire bull market gain, and then rebounded. In moving higher from a classic triangle pattern (green arrow), FSLR showed signs of approaching the 200-day moving average (MA).
A month later we show a small profit on our position. Although I always enjoy profits, I am becoming concerned with this position. Over the past month, uneven movement in the stock has resulted in another triangle pattern forming. This time, instead of a decisive move from the tip of the triangle (back arrow), we see sideways action. I am impressed that the shares have consistently found support at the 50-day MA, but I question whether that support can last. In a bear market, once resistance is broken, prices plummet.
With FSLR, each time we see the share price drop toward the 50-day MA, we wonder whether this is the time the level will fail to hold and prices will break materially lower. I am convinced that time will come and have no desire to stay in the shares to watch it happen. We always want all of our trades to show large profits, but in the markets, walking away when uncomfortable is often the best decision. For that reason, I recommend closing our long position in FSLR as this week’s technical trade.
Blain here: Another to analyze First Solar’s stock chart is to apply simple support and resistance and zoom in on the last 7 months of price action. Note the 50 day moving average support Sean speaks of.
As stated on the chart for FSLR to regain its bullish outlook the stock needs to move back above $160 and stop testing its 50 day moving average.
Sean Hannon, CFA, CFP is a professional fund manager and weekly contributor for StockTradingToGo.com. He runs EPIC Insights Weekly (subscribe) the free Sunday market newsletter, and is the founder of EPIC Advisors, LLC.
I agree with your analysis of First Solar and most solars due to lower margins and oversuppy of panels globally, Wind is the solution for renewables