So much for darkness descending on solar stocks. Since highlighting the potential for more downside in First Solar, Inc. (NASDAQ:FSLR) last month, the Arizona-based solar panel manufacturer has caught fire. Spurred on by a false breakdown, FSLR jumped an impressive 7.5% on Monday and was up another 4% in early trading today.
The new energy in FSLR stock warrants a fresh look at its price chart to discover if there is a trade to be had.
The origins of First Solar’s rally can be traced to the failed breakdown in mid-January. Failed patterns are a mean sort, luring you in with profit-filled promises but delivering nothing but losses. Since the nasty trap was sprung on the poor old bears, FSLR has squeezed mercilessly higher.
Monday’s surge scored a trio of bullish victories.
First, and perhaps most importantly, FSLR stock broke above a resistance zone near $44.50 successfully turning the short-term trend higher for the first time in months.
Second, First Solar closed above the declining 50-day moving average giving hope that perhaps a change in the longer-term trend is beginning.
Third, the one-day burst was accompanied by higher than average volume adding legitimacy to its ascent and increasing the likelihood that the breakout sticks.
FSLR Option Play
Bull put spreads offer an attractive route for playing a continued bullish behavior in FSLR. Sell the Feb $42/$39 put spread for 46 cents or better. Consider it a bet FSLR stock remains above $42 for the next couple weeks. Such a feat shouldn’t be difficult if Monday’s breakout holds fast.
The reward is limited to the initial 46 cents credit and will be captured if the puts remain out of the money. The risk is limited to the distance between strikes minus the 46 cents credit, or $2.54, and will be lost if FSLR falls below $39 by expiration.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.
