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Option Idea of the Week: First Solar

Short sellers and analysts have yet to capitulate to FSLR's technical resilience

by 12/14/2012 1:56 PM
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Alternative energy specialist First Solar, Inc. (NASDAQ:FSLR - 32.52) had a rough ride on the charts through the majority of 2011 -- and the first half of 2012, for that matter. However, after finding its footing just north of the round-number $10 level in June, FSLR has been constructing a convincing rebound on the charts.

Specifically, FSLR has roughly tripled in value since that June low, with the stock catching a lift from its supportive 10-week moving average. More recently, the shares broke out above resistance at the $25 level and their 50-week moving average, suggesting this fledgling rally has the legs to continue even higher.

 Weekly Chart of FSLR since April 2012 With 10-Week and 50-Week Moving Averages

FSLR's recent show of strength is bad news for short sellers. Despite an 8.3% drop over the past two reporting periods, short interest still accounts for a staggering 43% of the stock's float. At the equity's average daily volume, it would take more than six days for all of these shorted shares to be covered. During the near term, a continuation of the recent short-covering trend could keep the wind at FSLR's back.

Meanwhile, there's plenty of room for more analysts in the FSLR fan club. Among the 23 brokerage firms following the stock, only three consider it worthy of a "buy" rating. With 20 "hold" or "sell" ratings still out there, this rebounding security has ample upgrade potential.

In fact, FSLR's average 12-month price target currently stands at just $23. With the shares now establishing a foothold north of the $30 level, the solar concern seems overdue for a round of price-target hikes. Going forward, any bullish brokerage notes from this generally skeptical group could draw more buyers to the table.

Traders looking to take advantage of a continued rise in FSLR shares may want to consider buying the stock's March 24 calls, which were last asked at $9.30.


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