First Solar, Inc. (FSLR) stock has mounted the 200-day exponential moving average (EMA) for the first time in nearly nine months, signaling a new uptrend that could eventually test stubborn five-year range resistance in the mid-$70s. The Invesco Solar ETF (TAN) has perked up as well, shaking off headwinds generated by 30% solar import tariffs that have undermined local companies that depend on cheaper overseas panels. First Solar is due to report fourth quarter earnings following Thursday's closing bell.
Market players may also be picking up shares in reaction to December 2018's official approval of a California law that mandates solar panels in all new home construction starting in 2020. First Solar stands to benefit greatly from this requirement, perfectly positioned from its headquarters in Tempe, Arizona, to take full advantage of the opportunity offered by its neighbor to the west.
FSLR Long-Term Chart (2006 – 2019)
The company came public at $24.50 in November 2006 and entered an immediate uptrend that escalated after a five-point rally gap in February 2007. Impressive gains continued into May 2018's all-time high at $317, ahead of a pullback that accelerated during the economic collapse. The decline found support after giving up more than 230 points in just six months, settling in the mid-$80s in November.
A strong bounce into May 2009 reversed just above $200, yielding a persistent but orderly decline that found support in the upper $90s in 2010. A 2011 recovery wave failed 32 points below the 2009 high, carving the second lower high off the 2008 bubble peak. The stock broke 2008 support a few months later, entering a brutal downtrend that spiraled into an all-time low at $11.43 in June 2012.
A steady uptick posted gains in excess of 600% into 2014, when the rally stalled in the mid-$70s, carving a major resistance level that has resisted three breakout attempts in the past five years. Pullbacks initially held support in the upper $30s, but a 2016 breakdown reached the mid-$20s, marking the first higher low since the 2012 low. The subsequent advance pierced 2014 resistance by more than six points before rolling over in a 2018 failed breakout and bull trap.
The fourth quarter decline into $36.51 could mark the second higher low since 2012, but this uptick needs to exceed the 2018 high to confirm the high-low sequence. That will take considerable effort because the 30-plus points into that level are filled with unhappy shareholders who will be looking to get out even. Even so, momentum has now shifted to bulls for the first time since 2017.
FSLR Short-Term Chart (2016 – 2019)
A Fibonacci grid stretched across the uptrend that started in 2017 places the October 2018 low at the .786 retracement level. This raises confidence in a long-lasting bottom because it's a common ending point for major price swings. The bounce since that time has reached within two points of the 50% retracement near $54, a resistance zone reinforced by the top of the mid-summer trading range (green line). Unfortunately, the challenge for bulls gets even greater above that level, with a double top breakdown and multiple unfilled gaps into the low $60s.
The on-balance volume (OBV) accumulation-distribution indicator jumped to an all-time high in 2016, but a 2013 secondary offering may have skewed that number. It tested that level in 2017 and 2018 at the same time that price pushed against multi-year resistance and entered an orderly distribution phase that ended high in the indicator panel in October. All in all, this reflects unusual shareholder loyalty, given the five-month 55% haircut.
Patience is needed to play this complex pattern profitably, given multiple resistance layers. A multi-week reversal could set into motion after the rally crosses the 50% retracement, perhaps bringing the 200-day EMA back into play. A pullback into that level should offer a relatively low-risk entry point for long-term positions willing to sit through a two-sided tape and multiple setbacks before reaching a critical test in the $70s.
The Bottom Line
First Solar has entered a new uptrend, but extensive overhead supply favors long-term positions over short-term trades.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.