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Shares of solar energy solutions company First Solar, Inc. (NASDAQ:FSLR) rallied more than 4% last Friday on the back of Deutsche Bank raising its price target for the stock from $50 to $65 per share.
As a result FSLR stock staged a clean-looking breakout from a well-defined technical pattern that active investors and traders could now look to sink their teeth into.
Solar energy stocks have seen a tough going through the longer-term lens and remain among few groups of stocks that still trade significantly below their pre-financial-crisis highs.
Every once in a while over the past few years a bullish research note got investors excited about the prospects of solar energy stocks, but those moments of giddiness were always short lived.
FSLR Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Looking at the multiyear weekly chart, we see that FSLR stock has over the years found well-defined technical resistance at the black diagonal line, where it currently once again is trying to push above. Note however that unlike the last time in the spring of 2016 when this diagonal line was being attacked, this time around the stock is attempting to do so from a higher low versus its 2012 lows.
The bulls will point out that (if you squint) you can see this diagonal line actually already having been pierced with last week’s rally. The bears, on the other hand, will say that given the multiyear nature of the FSLR stock down-trend, it will take more than a one-week break past this line of resistance to bring more bulls to the table.
Moving averages legend: red – 200-day, blue – 100-day, yellow – 50-day
On the daily chart, we see that FSLR stock’s most recent rally kicked off in early May with a breakaway up-gap following an earnings report. This momentum then quickly also pushed the stock above its medium term simple moving averages.
By late July, the stock was ready for a pause and then settled in to a multiweek sideways consolidation phase that, through the lens of technical analysis, we can label a “bull flag” pattern. The lower end of this bull flag was supported by the yellow 50-day simple moving average, and with last Friday’s rally, FSLR stock completed its breakout of this bullish pattern.
Breakouts such as those in First Solar from last week can be taken advantage of with a high-probability income-generating strategy using options.
As a result of last week’s breakout rally, my proprietary B2 Reversal indicator also flashed a buy signal that now points the stock higher toward a first upside target about 10% higher, i.e. near $55. Any significant bearish reversal on a daily closing basis should be considered a stop loss signal, as it would undermine last Friday’s breakout move.
— Serge Berger