Solar module manufacturer First Solar (FSLR) is scheduled to report second-quarter results after the close of trading Tuesday. After last week’s selling, FSLR stock has once again reached an important support line, which should help active investors and traders better define their risk for a potential trade once First Solar reacts to the earnings report.
On the multiyear chart below, note that since March 2013, FSLR stock has respected its 200-day simple moving average as good support, which also allows us to draw a clear support line (black line).
Very simply, from a near- to medium-term perspective, should FSLR stock blow below there after the earnings report and on good volume and with conviction, then a major support line will have been broken and odds should favor some sort of follow-through selling in coming weeks.
Specifically, the price level to focus around is $60.
On the daily chart, in addition to the aforementioned key support area around the $60 mark, we can also map out two resistance areas of interest. First is last week’s reaction highs near the 50- and 100-day simple moving averages (yellow and blue lines, respectively) around $66, and second is the diagonal resistance line from the March top, closer to $71.
A break past the first resistance mark could set up a quick trade toward resistance point No. 2, while a good volume break past the second resistance could move FSLR stock into the high $70s, although that would be a big move percentage-wise.
Over the years, I have learned that as a general rule, better-probability trades in single-name stocks tend to set up once any given company has reported earnings; thus, waiting is a better approach than holding a stock through the earnings report in hopes of a specific outcome.
Again, this is from a trading point of view and does not necessarily apply for longer-term investors. Options traders might at times be able to take advantage of a skew in options volatility and pull off successful earnings trades if the stock moves more or less than expectations had priced in.
The focus in this column, however, is on the underlying stock.
When I do my daily blog and Twitter scans to measure investor emotions on various stocks, First Solar often comes up as one that investors have staunch opinions on. This in turn can spell opportunity for traders — particularly if the earnings report and/or the outlook doesn’t fulfill the crowd’s wishes.
The exercise here is to map out interesting support/resistance levels that active investors and traders can focus around for better probability post-earnings trades. These are not supposed to be make-or-break lines for long-term investors.
Much of the animosity and many arguments over a stock analysis can be put aside when we understand the intended time frames of the analysis.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.