The downtrend in solar stocks has been as consistent as it has been long. Chants of “long live the bears!” have echoed through the halls for almost two years now. Once high fliers like First Solar, Inc. (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR) have been brought low.
And while I’d like to bring good tidings to solar lovers this holiday season, my message will sadly be one laced with pessimism.
I’ve poured over the chart of FSLR stock and she’s about as ugly as they come. But on a bright note, solar stock haters will be happy to know First Solar is boasting one heck of a bearish opportunity.
Our analysis focuses on the most important factor a chart watcher could obsess over — trend. FSLR stock has been steeped in an epic downtrend since April. The persistent plunge has turned both the 50-day and 200-day moving averages lower.
If you want a silver lining, I suppose the 20-day moving average has flattened out due to this week’s price pop. But we’ve seen this movie before.
The current FSLR retracement has a high probability of suffering the same fate as its predecessors — failure. The stock is butting up against potential resistance in the form of old support.
And just above that, we have the descending 50-day moving average, which should also exert downward pressure on FSLR here.
Long story short, now is as good a time as any to look for bearish plays for solar stocks.
Profits Await as FSLR Goes Dark
Traders looking to profit from the pain in solar stocks could buy the FSLR Feb $32.50 put while selling the Feb $27.50 put for a net debit for $1.45 or better. The $5-wide put vertical spread is positioned to profit handsomely if First Solar can drop to $27.50 by expiration.
The max risk is limited to the initial debit of $1.45 and will be forfeited if the stock sits above $32.50. The max reward is limited to $3.55 and will be captured if FSLR stock can drop below $27.50 by expiration.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.