First Solar, Inc. (NASDAQ:FSLR) just took a 7% thump on the head Wednesday, though it was hardly its fault. Solar stocks as a group have had a tough going both year-to-date and in the longer-term. But now thanks to the latest clip, FSLR stock is reaching a critical area of support where trading opportunities could abound.
When First Solar reported its latest financial results on Aug. 3, the numbers were generally encouraging — at first glance. However, FSLR went on to cut its profit guidance for the year. The following day, shares took a sharp turn lower. The selling continued this week, particularly on Wednesday as rival solar energy company SunPower Corporation (NASDAQ:SPWR) cut its 2016 guidance.
FSLR stock has dropped by more than 40% so far in 2016. Despite reaching new 52-week highs only a few months ago, it now sits at fresh 52-week lows.
For some perspective on First Solar stock, let’s look at the charts.
FSLR Stock Charts
While shares of First Solar have been in an epidemic downtrend since they peaked in 2008, the price action since 2013 for the most part has found support in the high $30s and resistance in the mid-$70s. That’s a wide “trading range” for sure, but one that we can define nonetheless.
FSLR stock has now slipped about 50% from its March highs, and on Wednesday, shares broke below multiyear support on a daily closing basis. This is far from bullish price action, though a contrarian might say this is exahustion selling. Me? I want to see whether First Solar stock will attempt yet another bounce off the high $30s, and that will depend on where the stock closes on a weekly basis. A break below support on a weekly basis would be more telling than just a daily close below.
On the daily chart, we see that Wednesday’s selloff began with a down-gap that quickly pushed FSLR stock below aforementioned multiyear horizontal support. The bullish hopefuls will point to the fact that the stock did however close off its daily lows, which could be the beginning of a so-called “bullish reversal” that quickly gets First Solar back above support.
If and when a bullish reversal takes hold in coming days and the multiyear line of support proves to be holding once again, traders could look to play a bounce back into the mid-$40s. Options traders could sell out-of-the-money put spreads for a higher-probability way to capture gains from an oversold rally in FSLR stock.
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