FSLR Stock: Further Downside Expected
I have been searching for a technology stock to feature with a bearish bias. It is unfortunate that First Solar, Inc. (NASDAQ:FSLR) stock fits that bill. It has been a difficult task to find positions with a negative bias. My stock scanner that I use to search for names with a downside bias has been especially sparse.
This is good news for those who are long on stocks because market breadth is confirming the new highs we have just experienced in the indices, but this also compounds the bad news for FSLR stock. Stocks that are moving against the general trend are showing signs that they are especially weak. If a rising tide can not raise this boat, perhaps it has a hole in it.
The following chart illustrates the long-term trend in FSLR stock:
Chart Courtesy of StockCharts.com
The trend has been dominated by lower lows and lower highs. The chart moved from the upper left to the lower right and is a clear example of a downtrend. FSLR shares reached a high of $317.00 in May 2008, and have drifted lower since. Currently trading at $39.01, that represents a loss of 87.7%; this is total wealth destruction.
Some analysts look for positions that have fallen 90% in order to find some value, hoping that the investment has some upside. I wish had some positive spin to attribute this to FSLR stock, but I do not. The recent weakness in share price has caused some considerable chart damage.
The following chart illustrates the chart damage I was referring to.
Chart courtesy of StockCharts.com
FSLR stock was trading in a range for approximately three years, with the range spanning between $40.00 and $73.00. FSRL stock broke support on August 10, 2016, when shares closed below $40.00. The break of support has ominous implications for the stock. A downside break of the channel has a price objective of $7.00. No, this in not a typo, the range projects a price objective of $7.00, and at least a test of the June 2012 lows at $11.43.
The bulls do have one last hope: that support at 35.59 holds. The problem with this notion is that hope is not a premise of a good trading strategy and usually involves an emotional bias.
At this juncture, I would recommend two positions: short or neutral.
Shorting stocks can be a difficult venture because of the risk involved, as shorting a stock has a potential for unlimited losses. If I were to trade this, I would use a bear put spread.
A bear put spread is executed by simultaneously buying puts at one price and selling an equal amount of puts at a lower price that expire on the same day. This will capture the downside price objective and limit downside risk to the initial outlay.
The following is an example:
Buying January 19, 2018 for $35.00: Put for $6.25
Selling January 19, 2018 for $20.00: Put for $0.70
My net outlay and my risk exposure is $5.55 per share. If shares are trading below $20.00 at expiry, the strategy will be worth $15.00, representing a gain of 170%.
Bottom Line on FSLR Stock8
FSLR stock is down 88% from its peak in 2008. Markets have rebounded and indices are making new all-time highs but FSLR stock has failed to follow suit, which can be regarded as relative weakness. The recent price weakness has caused significant chart damage and points to lower prices in the near future. The path of least resistance is lower, and it is never wise to fight the trend.
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