Based on the charts, the sun is shining on certain solar stocks…but others, like First Solar (NASDAQ:FSLR) may see nearly a 50% decrease in coming weeks. Let’s explore what my Trending123 Pattern Scan, powered by Recognia, can reveal about two of the charts in this sector.
Buy the Head and Shoulders Bottom
Click to EnlargeCanadian Solar (NASDAQ:CSIQ) is a company that produces solar modules with applications ranging from bus stop lighting to home solar systems. Its stock has developed a head and shoulders bottom over the past 414 days, which means this is a trade for the long-term—but one that could pay you nearly 61%.
The price seems to have reached the end of a period of “accumulation” at the bottom of a major downtrend; the break up through resistance signals a reversal to a new uptrend. The head and shoulders bottom is created by three successive declines in the price following a significant downtrend. The lowest low (head) is in the middle, flanked by two higher lows (shoulders) at roughly the same level. Volume is highest as the price makes the first two declines, then diminishes through the right shoulder. Finally volume surges as the price closes above the neckline (drawn between the two highs) to confirm the reversal.
Recommendation: Buy CSIQ for a long-term trade with a $8.00 – $8.60 target and a $4.87 stop.
Short the Bearish Continuation Wedge
Click to EnlargeFirst Solar presents a short opportunity that should play out a little faster than the long one in CSIQ. It has developed a bearish continuation wedge over the past 20 days that could indicate a short opportunity with up to 74% downside from current levels if the pattern is confirmed.
After a temporary interruption, the prior downtrend is set to continue. A continuation wedge represents a temporary interruption to a downtrend, taking the shape of two converging trendlines both slanted upward against the trend. During this time the bulls attempt to win over the bears, but in the end the bears triumph as the break below the lower trendline signals a continuation of the prior downtrend.
Volume should diminish as the pattern forms.
Recommendation: Short FSLR for a $23.00 – $27.00 target, with a $49.85 stop.
InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123. Trending123 members receive access to the Trending123 Pattern Scan powered by Recognia free as part of their membership. For more information on which service is for you click here.