First Solar Inc. (FSLR) handily beat EPS and revenue estimates in their fourth-quarter earnings report on Tuesday evening, following weak third-quarter results that triggered a wave of downgrades and downwardly-revised predictions. The news initially lifted the stock more than 3%, but a Credit Suisse downgrade on Wednesday morning and has wiped out those gains into the U.S. opening bell.
The newly minted Trump era has been tough on solar stocks, with the president’s unrelenting focus on big oil undermining all sorts of alternative energy schemes. Also, the new administration is likely to reform or end many clean air statutes that have underpinned the sector. While Federal and state subsidies that have kept down industry costs are likely to disappear.
FSLR Long-Term Chart (2006-2017)
The company came public at $24.50 in November 2006 and entered an immediate uptrend that stalled at $283 at the end of 2007. It then entered a broad trading range, testing the rally high in May 2008, ahead of a downturn that triggered a double top breakdown during the October 2008 market crash. Selling pressure ended quickly in double digits, giving way to a strong bounce that ran into a buzzsaw of resistance above $200 in 2009.
Broad horizontal support at $100 got repeatedly tested into August 2011, yielding a major breakdown that cut through the bear market low a month later. The downtrend gave up points at a rapid rate into the middle of 2012 when the stock finally bottomed out at an all-time low just above $11. The two-legged decline from 2008 high to 2012 low punished the solar giant with an astounding 96% loss, reflecting the feast or famine nature of the solar industry.
The subsequent recovery wave stalled in the low-70s in 2014 and eased into a broad rectangular range with support near $40. A third test at that price level in August 2016 triggered a major breakdown that’s posted lower highs and lower lows into February 2017. The decline broke the .618 Fibonacci retracement of the 2012 into 2014 bounce in November 2016 while the most recent bounce has remounted that barrier, identifying $35 as a level to watch in coming weeks.
Monthly Stochastics dropped into the oversold level for the third time in three years in July 2016 and crossed over in a new buy signal at the start of 2017 (red circle). This positive positioning should underpin recovery efforts into the second quarter, predicting that bears will fail to drop the stock back to the December 2016 low in the upper-20s. However, intermediate upside is limited to $40, where new rectangle resistance is likely to repel breakout attempts.
FSLR Short-Term Chart (2015–2017)
The stock turned higher at range support (lower blue line) in October 2015 and embarked on a strong rally that reached range resistance in January 2016. It traded at that level for three months, attracting a crowd of breakout buyers who got trapped in a downturn that completed a round trip to the prior low in August. Poorly received earnings at that time triggered a bearish breakaway gap, igniting a new downtrend that still hasn’t confirmed a long-term bottom.
On Balance Volume (OBV) held up relatively well through the 2-year trading range, grinding sideways near multiyear highs into May 2016. Those positive technicals set off a series of buying signals that drew a large supply of market players into long positions. The indicator reflects the subsequent capitulation in a brutal multi-step distribution wave that’s now approaching a 3-year low.
The Bottom Line
First Solar has encouraged remaining bulls with a solid fourth quarter earnings report, but it will take months to clear steep obstacles in the way of a new uptrend. $35 and $40 mark key price levels to watch in coming weeks, with buyers unlikely to exceed that top number due to heavy resistance that’s now aligned with the 200-day and 50-week moving averages.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>