First Solar Inc. (FSLR) fell more than 10% in the first half of Thursday’s U.S. session, following agressive selling after quarterly earnings included an admission that another solar pricing war had broken out, forcing producers to cut margins to maintain market share. The decline continues a long period of bearish sector action, intensified by crude oil’s historic plunge into 2016.
Ominously, crude’s bounce into the third quarter hasn’t helped the stock or sector, apparently due to other head winds. They’ve also lost ground following the expiration of government subsidies in many venues, leveling the playing field with traditional energy producers. The industry has failed to meet this competitive challenge, as evidenced by Guggenheim Solar ETF (TAN) trading near a three-year low.
FSLR Long-Term Chart (2006 – 2016)
The company came public at 24.50 in November 2006 and entered an immediate uptrend, lifting to an all-time high at 317 in May 2008. It ground sideways into September and plunged with world markets during the economic collapse, coming to rest at 85.28 in November. The subsequent bounce retraced 50% of the bear market decline into May 2009 and stalled at 207.51, marking the highest high since that time.
The stock then eased into a trading range between the rally high and horizontal support at 100, holding that level into a 2011 breakdown the printed an all-time low in the lower teens in the middle of 2012. The subsequent uptrend lasted for more than two years but failed to reach the underside of the broken range, topping out in the mid-70s in 2014.
It then eased into a second range-bound period between the high and horizontal support at 40, with that congestive pattern still in play in the second half of 2016. This week’s earnings-driven sell-off has dumped the price within 4½ points of range support, with that level set to offer a low-risk buying opportunity for market timers looking to profit from an oversold bounce.
FSLR Short-Term Chart (2014 – 2016)
The daily view highlights the multiyear rectangular range, with support at 40 and resistance at 74. Breakout attempts in April 2015 and March 2016 failed, yielding aggressive selling pressure but it’s unlikely that range support will break any time soon, so a trip down to 40 looks buyable. Bulls should run for the hills if it does break because the violation will issue a major short-sale signal, opening the door to a decline that tests the all-time low posted in 2012.
The decline since March has exhibited almost no buying pressure, with small bounces getting sold as quickly as they appear. This has contributed to a massively oversold technical reading that favors decent upside after the sell-off reaches the downside target. An exact print at 40 isn’t necessary to fulfill that price swing, given prior bounces starting at 39.18, 40.25 and 40.50. This sequence suggests that committed buyers will emerge closer to 41 than 40.
On Balance Volume (OBV) looks surprisingly strong, given chronically bearish price action and is flashing a strongly bullish divergence that points to loyal shareholders, even though most of their positions are underwater. A 2013 secondary offering contributed to the positive reading but those shares aren’t to blame because the indicator shot higher in March 2014 and February 2015, with action since that time failing to unravel those buying spikes.
The Bottom Line
First Solar is getting sold aggressively after earnings, adding to an intermediate downtrend that’s now relinquished more than 30 points. It’s quickly approaching major range support at 40, raising odds for a profitable dip buying strategy. Keep in mind this is a timing play, requiring a tight stop in the upper 30s and aggressive profit taking at or below the 200-day EMA, currently falling from the mid-50s.
First Solar Price Levels to Watch after Earnings
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