First Solar Stock Chart Could Be Signaling a Bottom

Options traders have been bracing for a bounce, too

Jun 25, 2018 at 2:28 PM
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First Solar, Inc. (NASDAQ:FSLR) has been consolidating since a sharp pullback earlier this month that was compounded by a string of bearish analyst notes. In the meantime, some analysts have come to the stock's defense, like Baird two weeks ago, and BofA-Merrill Lynch, with the latter this morning upgrading FSLR shares to "buy" from "neutral" and setting a $63 price target. Judging by the technicals, these bulls may be on to something.

First of all, First Solar's slide has momentarily been halted near the round $50 level, a noteworthy price point in itself. But the half-century region -- namely, the $50-$54 range -- has added meaning for FSLR stock, as it sits near a number of critical areas. For example, the $50 level is about two times the equity's 2017 lows, and just above here is the site of a late-2017 bull gap.

Plus, the 320-day moving average resides at $53.66, near a 50% Fibonacci retracement of the 2017 low and 2018 high, and this region also is home to a 25% drawback from the year-to-date breakeven point. Serving as additional evidence, FSLR's 14-day Relative Strength Index (RSI) has been on the rise in recent days, but still rests just above oversold territory with a reading of 32.3. At last check, the stock was up 0.3% at $52.78.

fslr stock price

Options data suggests a large number of traders are expecting a bounce, too. Starting with recent action at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), First Solar has accumulated a 10-day call/put volume ratio of 5.06. Not only does this show more than five calls have been bought to open for every put in the past two weeks, but that ratio is also higher than 99% of all comparable marks from the past year, showing such a slant toward long calls is highly unusual.

Going by open interest added, the August 60 call saw by far the most action during this time frame. Data confirms substantial buy-to-open activity here, revealing expectations that FSLR will soon be back above the $60 level -- an almost 14% increase from current levels. The August 55 call also saw a notable increase in open interest during this time, along with the front-month July 55 and 60 calls.

However, this demand has driven up the relative price of call options. That is, the security's 30-day implied volatility skew has fallen to 1.2% and now sits in the bottom 10% of annual readings. This indicates call options are attracting higher-than-normal premiums when compared to their put counterparts.

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