by Profit Scanner | August 11, 2014 9:52 am
First Solar (FSLR) reported Q2 results after the bell on Aug. 5 that included disappointing earnings, but then a funny thing happened. The next day, FSLR gapped lower — then broke out on volume of 9.4 million shares, up more than 3% while the larger Nasdaq index gained just 0.05%. Since then, the shares have remained well above the breakout level.
At the close on Aug. 6, the Profit Scanner identified a bullish Continuation Wedge forming in FSLR’s chart. This pattern represents a temporary interruption to an uptrend, taking the shape of two converging trendlines both slanted downward against the trend. During this time the bears attempt to win over the bulls, but in the end the bulls triumph as the break above the upper trendline signals a continuation of the prior uptrend.
In this case, the Profit Scanner expects FSLR to rally anywhere from 10%-15% off of Friday’s close: its price target is $75-$78 within the next 27 trading days.
This particular pattern is supported by the share price crossing above a resistance level — and on Friday, FSLR crossed both its 21-week and its 200-week moving averages, which provides extra confirmation that the trend is poised to continue upward. In fact, FSLR has experienced 11 bullish events in total since the beginning of August.
In the above chart, you can see the two downward-slanting converging trend lines that characterize the bullish Continuation Wedge. Unlike the Triangles, where the apex is pointed to the right, the apex of this pattern is slanted downwards at an angle. This is because prices edge steadily lower in a converging pattern — i.e., there are lower highs and lower lows.
Over the weeks or months that this pattern forms, the trend appears downward, but the long-term range is still upward. A bullish signal occurs when prices break above the upper trendline, as they did on Wednesday.
Once in the trade, look for volume to diminish as the pattern forms. If volume remains the same or increases, this signal is less reliable. As mentioned before, FSLR crossing above resistance confirms the pattern; one resistance level that the Profit Scanner has identified is at $69.75. If, on the other hand, FSLR breaks below resistance on significant volume, this may signify a failure of the original bullish pattern – sometimes leading to a potentially profitable bearish play.
If the break below resistance occurs on not much volume, then it could simply be a temporary pullback to the breakout level and prices may change direction and continue upward after all. But for those looking to protect against potential losses by setting a stop, the Profit Scanner places a tight stop at $65.24 and recommends that you exit your bullish trade on a close below that level.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.
Source URL: http://investorplace.com/2014/08/trade-of-the-day-first-solar-fslr-nasdaq/
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