Embrace the Crash in FuelCell Energy With Short Puts

After a three-month-long gravity defiance campaign, FuelCell (NASDAQ:FCEL) is finally falling back to Earth. Given its outlandish 1,000% gain since November, the comeuppance was a long time coming. This week’s whack is the first time shares of the fuel cell power solutions provider have seen the south side of the rising 20-day moving average. With prices down 12% in early trading Thursday and bulls running scared, now is a perfect time for a fresh look at the FCEL stock chart.

a picture of a fuel cell

Source: Kaca Skokanova/Shutterstock

Let’s start with a few stats on the now six-bar pullback. Thus far, the peak-to-trough drawdown is 37%. It’s certainly the largest dollar drop during the uptrend, but it’s not the largest percentage loss. In fact, the previous three major retracements have all been in the same ballpark. Here are the details:

  • Nov 24th – Dec 2nd: -42% drop
  • Dec 23rd – Jan 5th: -27% drop
  • Jan 13th – Jan 15th: -27% drop

Although nerve-wracking, these previous three bearish episodes failed to kill the uptrend. That’s the good news and supports dip buyers eyeing the current discount with interest.

The bad news is today’s double-digit percentage decline cracked some key short-term support zones. It’s an uglier drop than necessary and acts as a warning that the next advance may not be as buoyant as its predecessors. Breaching floors creates overhead supply and makes it more challenging for a swift rebound.

To survey the damage, let’s begin with the weekly time frame.

The Weekly View Spells Danger for FCEL Stock

FuelCell Energy (FCEL) weekly stock chart with large drop

Source: The thinkorswim® platform from TD Ameritrade

We have one day left before completing this week’s candle, but it looks grim for now. We opened at the high of the week, fell virtually every day, and are now sitting heavily at the low. There really aren’t any silver linings. Bears were in control since Monday’s open and have pressed their advantage ever since.

Part of the problem with how swiftly FCEL stock climbed is it didn’t really form any weekly support zones along the way. We have to go all the way down to $7.50 before finding anything that even resembles a pivot low. And the moving averages aren’t helping matters much either. The 20-week average doesn’t come into play until under $11. It doesn’t mean prices must fall that far. It means we don’t have any reference points or clues as to where buyers might finally emerge on the weekly time frame. And that makes blindly buying right here a risky proposition. Evidence is needed that bulls are returning first.

Give me a smaller down candle next week to show the selling pressure is easing. A reversal candle would be even better. Barring that, it’s hard to support piling in right now.

That said, the daily chart does provide a few silver linings.

Short Puts Are Tempting

FuelCell Energy (FCEL) stock chart with oversold conditions

Source: The thinkorswim® platform from TD Ameritrade

The post-November uptrend did take a few pit stops along the way. In doing so, it gave us multiple potential floors that will come into play on the way down. The first one is nestled near $15. The rising 50-day moving average also comes into play around that vicinity. If bulls want to maintain any optimism, both levels need to hold.

If you’re interested in building trades into the weakness, naked puts are the way to go. FCEL stock’s low price and high implied volatility make the potential return extremely high for a cash flow play. If you’re willing to bet the stock remains above $13 for the next month, or if you’re a willing buyer at that price, then sell the March $13 put for 70 cents.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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Article printed from InvestorPlace Media, https://investorplace.com/2021/02/embrace-the-crash-in-fuelcell-energy-fcel-stock-with-short-puts/.

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