Charting My Jinko Solar Position

by: Joshua Hayes

Jinko Solar (NYSE:JKS) is a world’s leading Chinese vertically-integrated PV manufacturer of high quality mono and multi-crystalline solar modules, solar cells, silicon wafers and ingots in Jiangxi and Zhejiang provinces in China.

This IPO and energy-solar stock caught my eye for a new long position, based on its very strong price action at the beginning of July. Despite the overall rough market environment that it had the pleasure to IPO into, it is still one of the best acting stocks based on price performance during this period.

Partly this can be attributed to the solar sector having some strong stocks in it that are doing well. However, more can be attributed to the strong fundamentals that the company possesses currently.

For the past two quarters YOY EPS results have come in with gains of 105% and 536%. During that time, sales growth is 7% and 111%. These numbers the past two quarters are indeed impressive but the market is a forward looking animal: For the years 2010 and 2011 analyst see EPS gains of 287% and 20% respectively. These are very strong numbers and since 2006 the EPS growth rate has been 56%. This indicates that the company does know what it is doing. Jinko Solar also sports a 20% Return-on-Equity which ensures as long as sales are there, that EPS will be there.

Management still has a 54% ownership in this company which indicates that they are invested with the company as it continues to grow. As of the latest reporting period of June 2010 there are also 7 mutual funds with an invested interest in the company. What I would like to see is continue growth in that number in the coming reporting periods.

The company is in a good group overall as Solar stocks continue to have some buzz around them with stocks like STR Holdings (NYSE:STRI), Solarfun (SOLF), Trina Solar (NYSE:TSL), JA Solar (NASDAQ:JASO), Renesola (NYSE:SOL), and GT Solar (SOLR) all showing strong Relative Strength to the overall market the past year.

While the fundamentals are great and the overall industry outlook fantastic, I still make all my trading decisions based on technicals as that is what the greatest traders of all-time have done and history has proven that it works when used properly.

To that end I made my first purchase of Jinko Solar in July when the stock broke out to new highs on strong volume. I added to my position as it couldn't even rest and continued to make new highs. Since then, though, it has had a strong run and is definitely too extended to purchase more up here.

Therefore, before purchasing more I need to see one or two things happen: Jinko Solar needs to either create a new base on lower volume that lasts up to three weeks long (preferably five weeks) and then breakout of that base on strong volume. Or, it needs to pullback to the $12 area on extremely low volume in a nice controlled manner that is followed by a powerful bounce on very strong volume. Either situation would allow me to add to my long position.

On the other edge of the spectrum, when investing in the stock market, it is important to know where you will sell if you are wrong. If the stock reverses at any point on huge distribution or has a one day collapse of any kind, the chances are that I will abandon my current long position and wait for a better setup later on. Taking profits is an art and not a science and I will let the chart tell me when that should be done.

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Disclosure: Long JKS