FSLR Stock: The Darkness Continues
First Solar, Inc. (NASDAQ:FSLR) stock has been a disappointment to say the least. This stock once traded with a triple-digit handle and manged to hit a high of $317.00 in May 2008.
Solar energy stocks received a lot of hype when crude oil was trading north of $100.00 a barrel, and the talk about peak oil was running rampant. This led to the general population becoming aware of a potential problem, which led to their concern. The population’s concern coupled with their greed was the necessary backdrop to create a tailwind that fueled a surge for many alternative energy plays. Some investors believed that these companies would one day replace our need for fossil fuels.
When the price of crude oil crashed, the hype surrounding the renewable energy sector fizzled and so too did the dollars that were flowing into the alternative energy space. FSLR stock was punished like many of the stocks within this sector. First Solar stock hit a low of $11.43 in June 2012. From peak to trough, this represented a loss of 96%. This is essentially a total loss, and unfortunately this has become the common theme within the alternative energy space.
Some believe there may be some value within this sector, and that may be the case, but I have yet to find any supporting arguments from my style of investment analysis. As a result, I am bearish on this sector in general, and on FSLR stock in particular.
The following First Solar stock chart illustrates the bearish price action that supports my bearish premise.
Chart courtesy of StockCharts.com
The FSLR stock chart above illustrates that the trend since shares first peaked in 2008 has been to the downside. This downside trend is defined using a downtrend line. The downtrend is created by connecting the peaks on the chart above. Downtrends are characterized by moving from the upper left to the lower right, and there is no mistaking a downtrend from an uptrend.
Investors who wish to be long on a stock are advised to stay away from such trends until they actually reverse. Buying within a downtrend is referred to “catching a falling knife” and this is because your chances of accomplishing such a feat without hurting your portfolio is possible, but it’s a risky venture that can cause you more harm than good.
Trend lines are important, and are probably my most useful tool that I possess in my toolbox. It’s funny how something so simple can be so effective, but the same can be said about trading strategies in general. Simple trading strategies tend to outperform more than complex ones.
As long as the downtrend is still in place and FSLR stock is trading below the trend line, my bias will remain to the downside. My bias is heavily weighted on this trend line.
The following First Solar stock chart illustrates the recent trading developments that support further weakness.
Chart courtesy of StockCharts.com
The First Solar stock chart above illustrates that a previous level of support at $40.00 that supported the stock price since January 2015 has now failed. Not only has support failed, but it has now become a level of resistance.
It is not uncommon for a stock to trade back and test a previous level of support before the predominant trend continues. Such an event is referred to as a backtest, and that is exactly what is illustrated on the chart above. First Solar stock has effectively backtested the new level of resistance, and the door to lower prices is now fully open.
Some traders use the range to project a target price. This method is done by finding the trading range that stood above support and then projecting it below that level. If I apply this logic to FSLR stock, I get a target price of $7.50. This number may seem obscene for some, but I have learned to keep an open mind, as bear markets have a tendency to drive shares lower than even the most skeptical investors believed was possible.
The Bottom Line on First Solar Stock
I am bearish on First Solar stock, and I have yet to find anything on the FSLR stock charts that have swayed my opinion otherwise. When, and if, the charts suggest that a reversal is in play, my bias will change accordingly.