The Nasdaq has been the leader among the indices out of the novel coronavirus pandemic crash. It’s up an impressive 26% year-to-date. But the recent heroes on Wall Street are comeback sectors like the solar stocks. Consensus is that First Solar (NASDAQ:FSLR) is the cream of the crop, much like Canopy Growth (NYSE:CGC) is to cannabis. However, First Solar stock is not leading the pack up. It’s “only” up 50% year to date.
This makes me giggle a bit.
The Invesco Solar ETF (NYSEARCA:TAN) is up twice as much and Sunrun (NASDAQ:RUN) five times. Even though it is the anointed best-of-breed by the experts, First Solar stock is lagging. But that could be a good thing.
The whole sector got too hot and the October rally went too far too fast. The proof is that RUN fell 30% from its peak. Luckily, FSLR has only dipped half as much and is only 9% away from the peak. In this case, “lagging” served it well. However, let the debacle in RUN serve as a sobering example of what can happen here.
Patience is key at these levels. Momentum stocks like these run fast in both directions. Chasing them into a hype rally is rarely a good idea. Today, we look for the right entries in First Solar stock.
Its Range Has Been in Place Since the IPO
First Solar needs to consolidate some more. The rally started from a base of $60 per share. Then it took its second leg from the area around $77. For the bulls to go for higher-highs, they need to establish a better base. Don’t take my word for it, simply look left on the chart to how pivotal the $60 was in February. That marked a major fail point, so it serves as the base. This process will repeat near $98 per share.
In fact, zoom out and you will find that $60 is the pivot that dates back to its IPO. A level this important brings out traders of both sides. This will serve as very strong support on bad days. Therefore, me suggesting that First Solar stock needs to dip shouldn’t scare investors. It would be part of normal price action to establish a better base.
The monthly chart I shared highlights the range that has been in play since the beginning. Its upper limit is near $90 per share. The bulls broke out of it in 2007, but then lost it big time in 2011. They have not regained since then. Until they can prove they can, investors should assume that this edge is a place to fade First Solar stock. It’s up to the bulls to take it back this month. Otherwise, I suggest to buy-the-dip near $75 or $66 per share.
The Bottom Line on First Solar Stock
It hasn’t been easy to bet on solar stocks. But as the old adage goes: “No risk, no reward.” Maybe this uptrend is the one that recovers the old glory lost in 2011 on Wall Street. Maybe the world is now ready to re-commit to renewable power. Tesla (NASDAQ:TSLA) has helped the solar cause by pushing its own ventures in energy and EVs. In that case, I would prefer to stick with the proven winner and leader in the sector. Those tend to be less exciting but also less of a gamble. FSLR stock is the one for me but on a pullback.
The recent 50% rally was impressive, but it may have priced in the Biden victory. If that’s true, then from here it’s almost a no win situation. The Biden upside is temporarily priced in. If he loses, investors will leave the stock. My plan is to buy-the-dip if and when it comes.
In conclusion, I like owning First Solar stock for the long term, but from a better base. That said, I would not short it either. If I am not already long after a rally like this one did, then I admit that I missed it. They say that patience is a virtue and that is the case here.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
