First Solar (FSLR)
(5/14/07)

While First Solar is a company I actually like, and while it is a key player in the alternative energy space, it's stock has mushroomed into a bubble since it began trading last November, up some 200% in just six months.  It's trailing P/E is near 300, and even its forward P/E comes in at 64.  Analysts keep pushing the company, which as I noted has its merits, but their high forward P/E estimates already betrays their excessively bullish bias.  It seems unlikely that the stock should be able to maintain these valuations without a price correction, and on an Elliott Wave basis, we can measure what can be counted as a completed bull run.

The daily chart shows our wave model for its advance from November, and as the hourly chart shows, a 5-wave pattern is countable from the stock's May 1 low of 54.20.  In just nine days, the stock ballooned nearly 34% to an intraday peak of 72.45.  That, and the conclusion of a clear 5-wave advance, both suggest it should start to retrace that advance, offering a shorting opportunity.  Our preference is always to use less risky Puts for that purpose.  As far as downside prospects go, a simple 38.2% retracement of just the May 1-May 10 run occurs at 65.48, so minimally we're looking for about two points of downside.  However, and assuming the larger impulse pattern topped, then a correction should normally target at least the price area of the previous fourth wave, leaving potential for a full move back to 54.  Other potential retracement lows are noted in the hourly chart.  If you don't mind some risk, you can use current levels as an entry, or use a break below 66.90, as preferred.  There's some upside resistance at 69.05 and 70.33, and of course any break above the 72.45 high in a recovery bounce invalidates the wave model.  

For an option play, you can consider the Sept. 2007 $60 Put (symbol QHBUL), currently selling for $5.50 with the Delta at 0.40.  We usually like the Deltas higher, though we observed that in Friday's trading that the $60 Put appreciated about 20 cents more than the nearer to the money $65 Put, so it was a bit more responsive to the open interest at that strike.

©Copyright 2007 Tony Carrion.  All content presented is the exclusive property of Market Harmonics. com, which is owned & operated by T. Carrion & Co., LLC, and may not be duplicated or distributed without the express written consent of the author.