First Solar’s $100 Support Is Under Pressure $FSLR
Dr. Duru
First Solar (FSLR) has been stuck in a downtrend for two years (seechart below). The stock has traveled a volatile path through this trend, providing strong trading opportunities up or down. For example, a sharp two-month rally from the March, 2009 lows doubled the stock price. Insider buying earlier this year provided a convincing catalyst for me toget bullish and suspend any more shorting activity, concluding in anearnings release that sent the stock soaring to its last peak when I went neutral on the stock.
In the middle of this downtrend, the $100 support area hasexperienced frequent challenges, especially for the six months duringthe depths of the financial panic. Sharp bounces have followed everychallenge of this support. Insider buying met the last challenge. Ithought $100 would finally provide a lasting (intermediate-term) bottom, but a little over three months later the stock is right back atsupport. FSLR hit as low as $100.19 on Tuesday but closed at $104.38. It now sits at $103.07 and seems headed lower.
I would normally be very bullish again at these levels, especiallywith the general stock market oversold. However, I am guessing theinsiders who loaded up on FSLR stock at these levels did not considerjust how bad the sovereign debt crisis could get in Europe. Theycertainly did not consider the possibility that the euro could hitparity with the U.S. dollar over the coming months. There is also thevery real possibility that the $100 support area will not trigger thenext sharp bounce but instead, FSLR could finally succumb to the overall downtrend, melting away for an extended period (for example, see thebearish wedge pattern).
So, I have taken a cautious approach that I hope will keep mewell-positioned for a potential sharp rally while protecting against avery bad drop from here. I added to shares acquired during the recentsell-off and adjusted my put positions by closing out a put spread andadding to June 95 puts. If I am still holding shares in another week, Iwill establish moderate protection to last through July or August(depending on prices).
The weekly chart below highlights the positive milestones within theoverall downtrend. I did not draw a line at $100, but hopefully it isstill clear that this persistent overhead downtrend is placing everfirmer pressure on the $100 support area.
FSLR’s steady downtrend has included numeroussharp rallies
Be careful out there!
Full disclosure: long FSLR (hedged)
Dr. Duru Dr. Duru attended Stanford University, receiving a B.S. inMechanical Engineering, an honors degree in Values, Technology, Scienceand Society, and a Ph.D. in Engineering-Economic Systems (nowManagement, Science, and Society). He has done some independentconsulting in mathematical modeling, slogged through management consultingin product development and technology strategy, and is now pounding thepavement helping companies to improve the monetization of onlineadvertising through analytic software and rigorous analysis.