Wednesday, May 9, 2012

First Solar (FSLR) and Green Mountain (GMCR) – Blood in the street

Markets continued selling-off today in the wake of anti-austerity election results from the weekend in the Eurozone core (France) and periphery (Greece). In today’s trade (May 8, 2012), the S&P 500 ended down 0.43%, the Nasdaq slipped 0.39%, and the DJIA underperformed with a decline of 0.59%.

In yesterday’s trade, the principal indices recorded results ranging from unchanged to down a quarter percent.

Particularly interesting action is happening among certain day-trader favourites, most notably First Solar Inc (FSLR) and Green Mountain Coffee Roasters Inc (GMCR).

FSLR, 5 y 1d
GMCR, 4 y 1d
The long-term view of these securities, as is depicted in the charts above, is decidedly ugly. Both stocks are down over 75 percent since September 2011. The difference between GMCR and its 200-day simple moving average (negative $41.6) is considerably greater in absolute value terms than the GMCR share price ($26.4).

Price channels offer a fair amount of explanatory power from the perspective of daily candles, particularly so for GMCR. In the case of the coffee roaster, an 8-month channel nicely captured the support area around $24 of this week’s colossal fifty-percent rout.

FSLR, 180 d 1h
On the hourly candles chart, First Solar’s price extremes are cleanly encapsulated by price channels. That said, these channels (depicted just above) are not robustly defined and should be treated with caution; the red, 8-month channel is defined by the bare minimum of 3 points, and the yellow, 4-month sibling is marked by only 4 points.

In their defense, the slopes of the lines that mark these channels are significant in other, not-drawn spots. In other words, additional lines of the same slope as the channels could be drawn, and these additional lines would identify areas of support or resistance.

The fact that such a “significant slope” exists lends weight to the value of a price channel of that slope.  

GMCR, 180 d 1h
The hourly candles chart of GMCR is similarly enticing to the price channel devotee. Most notably, as mentioned above, the red, 8-month channel perfectly catches this week’s free-fall collapse in price. Other channels are also evident and, moreover, the security exhibits a tendency to react to horizontal support and resistance.

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