- First Solar (FSLR) shares rallied 5.6% on Monday after breaking through a critical resistance level.
- The spike in oil prices is causing traders to take a second look at solar stocks.
- FSLR stock has one of the best-looking charts in the industry.
First Solar (NASDAQ:FSLR) shares are surging Monday afternoon as fresh buyers enter the leading solar stock. The gains are made all the more impressive by the lack of participation from its peers. Indeed, the Solar ETF (NYSEARCA:TAN), which counts FSLR among its top holdings, is hovering near unchanged on the day. I’d chalk up First Solar’s sudden surge to a technical catalyst — and there are a couple ways a smart investor can play that.
The price just breached a two-month resistance zone at $80, bringing fresh buyers into the fray. Shares of the Arizona-based solar technology company saw almost 4.2 million shares change hands today. That means it ended the day with over 200% of the average daily volume.
Of course, Monday’s strength isn’t an isolated incident. Many solar stocks have recently reversed into uptrends as skyrocketing oil prices have caused investors to take a second look at their once-sagging share prices.
FSLR Stock Chart Is Heating Up
There are times when a stock pops on my radar based on being a top gainer for the session, but its price chart leaves little to talk about.
Finding a good trade is more than just spotting a stock on the move. It also needs a quality trend and clear price pattern that creates a low-risk entry point. Absent that, it’s not worth a trade. Fortunately, FSLR has everything a trader could want.
Let’s break it down from top to bottom.
First, the trend just reversed higher. With a daily uptrend in place, FSLR no longer has the baggage of the downtrend that weighed on its prices from May to early March. The path of least resistance has officially switched from lower to higher.
Second, moving averages confirm the turnabout. Prices have been rising long enough to pull the 20-day moving average back above the 50-day. What’s more, the 50-day moving average is flattening out and should soon turn higher.
Third, support has been building for weeks, and we have a series of higher pivot lows to confirm increased buying aggression beneath the surface. The last two months formed a rounded bottoming pattern that’s now complete and confirmed.
Fourth, volume patterns have weighed heavily in favor of bulls since the outsized reversal bar on Feb. 24. The groundswell in accumulation reveals big sellers have fled, and institutions are wading in.
I could go on and on about how various momentum indicators are pushing to multi-month highs and confirming the strength, but I think the evidence is sufficient. The only remaining question is how to capitalize on further upside.
Build an Options Spread
Implied volatility is running hot at the 68th percentile, so options premiums are pumped up. Remember, this works to the advantage of options sellers and the disadvantage of options buyers. I’m going to pitch two ideas. Buy call spreads if you want a more directional play with a higher payout. Otherwise, sell put spreads.
Bull Call Spread: Buy the May $85/$95 bull call spread for $3.50 or better.
You’re risking $3.50 to make $6.50 if FSLR stock rises to $95 by expiration.
Bull Put Spread: Sell the May $70/$65 bull put spread for 60 cents or better.
You’ll capture 60 cents if FSLR stays above $70 for the next 53 days.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.