First Solar Deal Makes Chinese Solar Stocks More Attractive (FSLR)

First Solar (FSLR) wasted no time in securing a deal from China. One day after announcing the arrival of senior Chinese government leaders from the Standing Committee of the National People’s Congress of China, FSLR announced that it had secured a major contract in Inner Mongolia.This 2 gigawatt desert solar power plant is exactly the kind oflarge-scale, solar utility that First Solar has said it is pursuing as it transitions to the next phase of the solar market.This contract also indicates that the Chinese are serious aboutblunting growing charges that they are dumping panels on the market andengaging in unfair trade practices in the solar market.

While this contract is a positive for First Solar (and the stockmarket responded quickly to the news – although the initial surge wasmet with some high volume selling), I think it is even better news forChinese solar companies. If the Chinese government is willing to throwFSLR this big a bone, the largesse that it will spread on its owncompanies should be “spectacular.” As I have stated in the past,Suntech Power (STP) is my favorite short-term play for Chinese solarstocks. In the past month, I have also become impressed with TrinaSolar (TSL).

In the meantime, I am still net short FSLR. Today’s big move shiftedthe position to neutral, and I sold calls to get back to net short.Ever since FSLR hit my downside target of $130,I have been looking for reasons to get long. The downtrend thatpersisted up until last week was enough to convince me that FSLR is nowlikely to go even lower as on-going macro (and some company) issues continue to weigh on the shares over the intermediate term.In the meantime, the current bounce could carry FSLR back to $145-150before topping out (convergence of the 50 and 200-day moving averages).For now, I am staying net short

Another solar name to watch is Energy Conversion Devices (ENER) asrumors were rampant today that Applied Materials (AMAT) is looking toacquire the company. At the time of writing, ENER has surged almost 30%on the news in what must be at least partially a short squeeze. Beforethe news, ENER was still making new 52-week lows and had around 31% of its shares sold short. I was fortunate enough to be in a position to buy calls today, but I sold out after the stock had hit “just” 15% on the day.

Be careful out there!

Full disclosure: long STP, net short FSLR, short ENER put spread

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