FSLR Stock: Triangles Are Particularity Powerful Price Patterns
First Solar, Inc. (NASDAQ:FSLR) stock has been trading in a tight range since August, which has caused the volatility in FSLR stock to evaporate. The daily range has continued to contract to the point where the range between the high and the low currently stands below $1.00. This contraction of volatility and the daily range is suggesting that a powerful move is setting up to take place. The current trading environment is playing out like the calm before the storm. The storm will be the powerful move in First Solar stock that follows.
Analyzing an investment’s price action is a method of analysis known as technical analysis. I prefer this method over conventional methods like fundamental analysis because the indications that are produced are timely, and when they are applied correctly, the results are simply outstanding.
The contraction of volatility and the daily range is creating a technical price pattern known as a symmetrical triangle. This pattern is highlighted on the following First Solar stock chart.
Chart courtesy of StockCharts.com
This symmetrical triangle pattern is defined by the price action, which contains a series of higher lows and lower highs. This pattern is best captured using two converging trend lines. These trend lines, which are created by connecting the consecutive lower highs and higher lows, represent levels of price resistance and price support, respectively.
As this pattern progresses, volatility and the range between support and resistance continues to contract. This price action on the FSLR stock chart is best described as a battle being waged between bullish and bearish investors. Every time a level of support or resistance is tested, it causes momentum to build within the pattern. When the stock price breaks above resistance or below support, a victor will be crowned, and the built-up momentum will be released. This is why symmetrical triangles are particularity powerful price patterns.
On its own, this pattern sheds little light on which direction the pattern is likely to break out in, so to shed some light on this situation, it is necessary to take a look at the price action on the FSLR stock chart that preceded it.
The following First Solar stock chart illustrates the price action over the last five months.
Chart courtesy of StockCharts.com
FSLR stock bottomed earlier this year and the trading action has been creating the quintessential characteristic that defines all bullish trends, which is a series of higher highs and higher lows.
This progressive movement towards higher stock prices is called constructive price action. Constructive price action consists of impulse waves and consolidation waves that work together in an alternating wave structure.
The impulse waves, which are highlighted in green, define the period in a bull market advance where the stock price stages a linear move towards higher stock prices.
The consolidation waves, which are highlighted in purple, define the period in a bull market advance where the stock is characterized by corrective price action. This corrective price action is necessary because it alleviates overbought conditions. Alleviating overbought conditions creates the necessary environment so a new impulse wave can develop.
These waves feed off each other, and in an alternating wave structure, these waves create the necessary conditions to facilitate and create a bullish trend.
The symmetrical triangle that was highlighted earlier on the First Solar stock chart is a consolidation wave within this wave structure, and a resolution to this pattern will determine whether FSLR stock is set to appreciate or depreciate.
The golden cross, which was created in June, occurred when the faster 50-day moving average crosses above the 200-day moving average. This signal indicates that a bull market is in development, and while it remains in bullish alignment, it favors price patterns resolving themselves in a bullish manner.
The wave structure supports a bull market and the golden cross implies that one is in development. This confluence of indications increases the odds that the consolidation triangle that is currently in development on the First Solar stock chart will resolve itself in a bullish manner by exiting that pattern in an upward direction.
First Solar stock is setting up a technical price pattern that is known for its explosive breakouts. The price action that preceded this pattern and an influential indicator are both bullish. This bullish posturing is why I am anticipating a bullish resolution to the pattern in question suggesting that higher FSLR stock prices are on the horizon.