In a year where Chinese solar companies have generally out-performed American solar companies, LDK stands out as a laggard. LDK is down 31% for the year whereas every other major Chinese solar stock traded on the American exchanges is no worse than flat on the year.
When Q-Cells announced it would terminate a supply contract with LDK, LDK’s stock plunged 23% in a day of climactic selling. This move completed a breakdown from a wedge-like pattern I flagged in early October. LDK has not looked back since and the subsequent trading action has positioned LDK for a strong year-end close.
The chart below describes the set-up which can be summarized as a selling climax followed by strong buying volume that has finally broken through stiff technical resistance in convincing fashion. Inserted into this trading action was an earnings report that was initially well-received as LDK guided fourth quarter revenues to a range of $280-310M, well above the $259M consensus expectations. The Q-Cells relationship provides the bookends as LDK announced on Friday that it reached a revised supply agreement with Q-Cells:
“During recent amicable negotiations, the two companies resolved all differences of opinion over the interpretation of the agreement and neither side will pursue legal action. Q-Cells also agreed to no longer pursue measures to collect the bank guarantee. Joint business activities between the two companies remain unchanged. LDK Solar and Q-Cells have agreed to increase the flexibility of the delivery schedule.”
*Chart created using TeleChart:
I consider LDK a buy anywhere between here and $8.60 or so with a conservative stop below the 200DMA (around $8.45) and an aggressive stop below the 50DMA (around $7.53), all depending on position-sizing. LDK may even be a potential play for the legendary January effect. The next likely resistance level is the September high around $10.
Be careful out there!
Full disclosure: no positions
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