First Solar Is Still Just A Trading Stock

(This is an excerpt from an article I originally published on Seeking Alpha on August 13, 2012. Click here to read the entire piece.)

Since reporting earnings August, 1, First Solar (FSLR) has been on a tear. {snip} This trading action represents strong follow-through to the nascent bullish action I pointed out on June 19th:

{snip}


First Solar's bounce from the June lows continues in impressive fashion
First Solar's bounce from the June lows continues in impressive fashion

Source: FreeStockCharts.com

Shares short against First Solar reached an all-time high just ahead of earnings…{snip}…


After sharply dipping in the first two months of 2012, shorts have ramped strongly against First Solar
After sharply dipping in the first two months of 2012, shorts have ramped strongly against First Solar

Source: NASDAQ short interest

Despite the encouraging action in First Solar, I think it is still a trading stock for now. Accordingly, I used the rally to close out near-term call options and switched to near-term puts to hedge the remainder of my (base) position in FSLR. I next looked deeper into the earnings results to try to identify whether something sustained and lasting had changed in First Solar’s business….{snip}….

The chart above shows that FSLR has finally a stalled a bit over the last three days. If these levels do not mark the peak of the recent rally, I then expect a top around $24 where the initial surge after FSLR’s restructuring news ended. On the downside, I am looking for FSLR to eventually fill its post-earnings gap up but find some temporary support at the now upward trending 50DMA. At that time, I will evaluate whether it makes sense to flip the trade back to a (short-term) bullish bias. My assessment will depend on whether short interest has increased to even higher levels, and whether the general stock market still maintains a bullish bias.

{snip}

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on August 13, 2012. Click here to read the entire piece.)

Full disclosure: long FSLR calls, long and short puts

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