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For the longest time, solar energy companies rallied when oil rallied. That made sense. As the price of oil spiked, the interest in alternative energy sources grew and thus the reason for the high correlation between the price of oil and the price of solar stocks.
When oil jumped 150% from the beginning of 2007 to its all-time high in mid-2008, First Solar (NASDAQ: FSLR) jumped almost 1,000%. When oil prices collapsed in the second half of 2008, First Solar stock fell over 50% and was down over 70% at one time. By mid-2012, First Solar had lost 95% from that peak in May 2008, falling from over $300 a share to under $13 a share.
First Solar reversed course from May 2012 through September 2014 and gained over 500% during that time, moving from under $12 a share to over $70 a share. Oil prices starting falling in the summer of 2014 and that decline is still going on today. The price of West Texas Intermediate crude has fallen from almost $107 a barrel to $30 a barrel. Initially, as the downturn in oil started, the price of First Solar stock started falling too. But in the last few months, First Solar has rallied even as oil has continued to fall.
On the daily chart, we see that First Solar stock has been in an upward sloped trend channel over the last four months and has just bounced off the lower rail of the channel and has turned higher. We also see that the stock hit oversold territory based on the slow stochastic readings and the 10-day RSI hit the same level it did back in December when the stock reversed course and moved higher. The upper rail is all the way up near $72.
On the weekly chart, we see that First Solar has formed a double-bottom pattern down at the $40 level and is now trying to remain above the high between the two lows. The stock moved above the $65 level, but the selling that hit almost all stocks at the beginning of the year took First Solar shares back down below this area.
The oscillators on the weekly chart are a little concerning, with the slow stochastic readings having just moved out of overbought territory and with the RSI hovering just under 60.
Given that First Solar has been able to rally even as oil prices have fallen – and how the trend channel has formed on the daily chart – I like First Solar’s chances of moving back above $70 on a short-term basis. Based on the current price and the upper rail of the channel, I would target a gain in the 15%-20% range over the next few weeks. As far as a stop-loss point, if the stock were to fall back below its 50-day moving average, I would look to close out the trade, but would keep an eye on a second attempt to play a rally in the stock.
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