First Solar, Inc. (FSLR) fell marginally lower on Thursday after Baird downgraded shares to Neutral from Outperform with a $38.00 price target. After rising about 30% over the past month, the analyst believes investors may be overly optimistic about potential import tariffs and Series 6 production, saying that it would like to see more clarity on the latter and a better entry point from a valuation perspective.
From a technical standpoint, the stock moved sharply higher earlier this month before giving up some ground over the past few days. Baird’s downgrade sent the stock to R2 resistance at $44.48 before it rebounded above its 200-day moving average at $34.29. A breakdown from these levels could lead the stock to possibly close the gap to its 50-day moving average at $30.41 – a significant move lower from its current levels.
Technical indicators continue to point in this direction with the relative strength index (RSI) trading at a still-lofty 63.42 and the moving average convergence-divergence (MACD) on the verge of a bearish crossover.
Traders should keep an eye on the 200-day moving average and R2 resistance as two key support levels. If the stock avoids a breakdown, it could see a period of consolidation before any further moves higher, which suggests that traders may want to take some profit off of the table. The long-term fundamental picture supports an ongoing turnaround, but the rally may be losing momentum after the ~30% increase over the past month.
Finally, traders should keep an eye on any potential news of an import tariff that could bolster the solar industry. Optimism surrounding the situation has helped boost domestic companies in the space, which means that there could be significant downside if it doesn’t materialize.
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively-managed index funds.