It's always important to be prepared when a stock has challenged a key price resistance level multiple times and it's testing it again. First of all, if a stock does make a breakout technically, it's normally followed later by the fundamental news that triggered the breakout. In addition, technical buyers take note when a stock reaches a fresh 52 week high as many traders run scans for such developments.
So should we be ready to pounce on First Solar (FSLR)?
Well, there's nothing wrong with watching it and seeing if the breakout is made, but the stock clearly comes with a couple warning signs:
The price resistance from 75-80 seems rather obvious to any technician. But I have other concerns that need to be remedied. For example, where the heck is the volume on this move higher? If Wall Street is sensing good news coming, FSLR should be seeing a rise in volume as institutions accumulate ahead of the news....but it's not. Further, renewable energy ($DWCREE) has been on fire. Outside of automobiles ($DJUSAU - think TSLA), and possibly computer hardware ($DJUSCR - think AAPL), I'm not sure there's a stronger group right now than renewables. So in the midst of a massive bull run in renewables that's sent many stocks like SEDG, ENPH, and RUN to all-time highs, FSLR is still trying to clear highs established 6 years ago?
No thank you. One of our basic tenets at EarningsBeats.com is to own leading stocks in leading industries, not wannabe leaders in leading industries. FSLR still has plenty of work to do, so we'll let others have it until it can prove its leadership capabilities.
Can you trade a breakout, if one occurs? Sure, but just keep in mind that it's not a leader, so if the breakout fails, keep a tight stop in place.
Owning leaders is of utmost importance. Our Model Portfolio, made up of 10 leading stocks in 10 leading industries, is absolutely soaring and poised to benefit from a HUGE earnings report in Zoom Video Communications (ZM) today - ZM is up 35% in pre-market this morning. But even before today's big move in ZM, our Model Portfolio is +149.54% in just a little more than 21 months. Given the market's current momentum, we might do the unthinkable - tripling the portfolio's value in 2 years or less.
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Happy trading!
Tom
