First Solar Still a Short

First Solar (FSLR) is still a short after breaking a six week support line today. Last month, I tagged FSLR as a short mainly because massive insider selling combined with a premium valuation is a huge red flag to me. I pared back some of the position today and will look to add on any near-term bounce. TraderMike beat me to the punch on a technical review of FSLR's chart, so I will just add that today's break below the 50-day moving average (DMA) greatly increases the odds that FSLR will fill its May post-earnings gap sooner than later.

FSLR is holding an analyst/investor meeting next Wednesday, so I suspect the stock will not experience much more downside in the next week (not without some new bad news anyway). Look for FSLR to reassure investors that falling prices in polysilicon are not impacting its business. I will be very interested to find out how much financing FSLR is extending to its customer base.

In related news, each one of the short-term (speculative) solar trades I noted yesterday blew up in spectacular fashion: Ja Solar Holdings (JASO), LDK Solar (LDK), Suntech Power (STP), and Yingli Green Energy Holdings (YGE). I guess every solar trader saw the same encouraging short-term technical signs that I did and rushed in at once on Tuesday's open. Each stock opened fast and strong, topped out around mid-day, faded hard into the close, and violated stops today. The opens were so strong that I did not even get a chance to think about executing on any of these stocks (I tend to avoid executing trades within the first 30-60 minutes of the day, and I LOATHE chasing anything).

Uptrends remain intact, but lower support lines are bound to get tested on the more speculative names (like YGE falling to its 50DMA). It now seems even more likely that Evergreen Solar's (ESLR's) late arrival to the solar rally signaled the conclusion of this latest run. It is now FSLR's turn to lead again...downward.

Be careful out there.

Disclosure: net short FSLR; long TAN. For other disclaimers click here.

Comments

[Zenfar:]

"Look for FSLR to reassure investors that falling prices in polysilicon are not impacting its business."

Can this trend of lower polysilicon prices continue? If so for how long? When it changes how does that effect companies that don't make Jimmy Panels?

Jun 17 03:19 PM

[Ellito:]

The main concern investor should aim at is the US Stimulus Fund.
When the time comes, what requirements it has on US companies or foreign companies. Not all solar companies will benefit.
The "BUY AMERICAN" will definately apply.
Pick your company accordingly.
Foreign or American, that's the question !

Jun 18 05:03 AM

[TurtleTrader72:]

FSLR appears to be in the process of filling its "up gap" created 04/30/2009. If it does, that should take the stock down below $160 over the short term. Looking at the daily charts, I have also noticed that there is an 'unfilled up gap' created 11/24/2008 at around $95. Ultimately, i believe the stock will fill this gap as well sometime in the longer term future. Not that 'up gaps' are any guarantee of a downtrun in the stock, they are indicators of excessive trading practices and do increase the probability of a retracement back to those levels. Hope you find this useful..

Jun 18 10:55 AM

[David White:]

Your logic works, but there are also fundamental reasons for shorting (and likely explain the insider selling). The price of polysilicone has gone down considerably from last year. The polysilicone makers margins have gone down from last year. The price of polysilicone is predicted to go down approx. another 30% for the rest of this year. Polysilicone is fully 1/2 the cost of manufacture of polysilicone solar. All this ultimately means that FSLR's price advantage in solar over polysilicone solar is disappearing if not gone. With a virtually even playing field FSLR will have trouble winning clients (or even retaining clients). This will hurt FSLR's growth. The competition will also hurt FSLR's margins. FSLR likely has farther to fall.

Jun 18 12:33 PM