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TSL support holds, setting up a breakout?

Apr. 28, 2011 1:40 PM ETTSL-OLD
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djn21's Blog
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Seeking Alpha Analyst Since 2009

First off, I view the entire monetary and financial system as something of a Ponzi scheme. Starting with currency that is debt, and running straight though a global economic model that is based on a premise of infinite growth in a finite world. This won't end well. I'd go a step further and suggest that our materialistic value and belief system is another way in which we're building castles on sand... but I digress. I view that markets as a casino, and frankly, I like gambling. So I rather enjoy the game, and love reading Seeking Alpha and anything that feeds my appetite for knowledge and insight. I prefer technical analysis to fundamental analysis because I find the "behavioral" side of investing more interesting than longer term projections based on numerical analysis. I believe in micro-caps. I believe the market rewards growth above all else, and growth is easiest and most explosive when a company is young and small. As a company matures, its growth inevitably slows. Microcap stocks tend to be extremely volatile so I believe strongly in taking profits on the way up (or exiting quickly if the entry point proves poor). I attempt to buy stocks that are pulling back in the midst of a longer term uptrend. I hold anywhere from hours to years, but usually in the 3-6 month range. I committed every investing cardinal sin between first entering the markets in 1999 and 2002, losing 90% of my money. Since then, I've found an approach that works reasonably well for me. My average return has been about 25% annually since 2003.

Trina Solar (TSL) is a Chinese ADR that I’ve bought into recently.  I opened an initial position around $27.5, then added yesterday in the low $26′s, around TSL’s 200 day moving average.  The fundamentals are fantastic, (P/E under 7, revenue and earnings growth 100%+, ROE over 33%, so forth), but Chinese ADR’s often have great fundamentals on paper.  The risk of accounting fraud has led Chinese stocks to trade at deep discounts pretty regularly for the last decade – often with good reason.  TSL has a market cap over $2B, it has decent exposure, over 60% institutional ownership, and has presumably been more vetted than some others.  Most importantly to me, the chart is pretty compelling.

TSL is forming a pretty clear ascending triangle.  In the last two days, TSL has tested and held its rising uptrend line – which coincided neatly with the 200 DMA.  That trendline provides a nearby exit should the price breakdown.  On the upside, I’d be looking for a rally to $31.  A strong move above $31 would indicate a breakout.

Here’s a look a the ascending triangle that’s formed over the last 2 years:

Here’s a closer look at today’s bounce off support at the rising trendline and the 200 DMA.

It looks $31 is where to target an early exit.  For the more patient and hopeful, a breakout above $31 may well be a good spot to add.

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