in September, but the strong uptrend has cooled off since the calendar flip into October.
, in particular, has struggled in the last two weeks: This sector leader has dropped 14 points off the multi-week high posted on the final day of the quarter.
While the action suggests that funds have pulled some capital from this speculative grorecent up, I believe the downturn is just temporary, and that these issues are heading toward low-risk buy zones ahead of a strong 2011 performance. With this in mind, let's build a watch list of top sector plays in order to take advantage of this developing opportunity.
I looked at First Solar
, at which point I cited the likelihood of a rally that would lift the stock above $150. That price action unfolded, as expected, with the trend reversing at that level and dropping into the 50-day moving average (red line) late last week. It's bounced on this support zone for the last three sessions and could turn the corner here.
However, as I pointed out in that column, a continued decline into the 50-week moving average at $132 might offer a better buying opportunity. In that regard, note that the weekly Stochastics (5-3-3) shows proportional oscillations since August 2009, and that the current downswing needs another two or three weeks to bottom out and turn higher.
So, I recommend buying the stock when price drops into the 50-week moving average, around the same time that Stochastics will hit oversold territory and start to turn higher. This alignment should put the wind at your back ahead of a strong recovery that could work its way toward $200 in early 2011.
( SOLR) came public at $16.50 in the summer of 2008, just in time to get crushed by the bear market. It bottomed out at $1.55 in November of that year and bounced quickly to $9.04. The stock pulled back from that price level in a rounded correction that returned the price to the recovery high just two months ago.
The stock has been moving sideways since that time in a positively-tilted trading range that shows support at the 50-day moving average and resistance at the high. The stock rallied to the breakout level in Monday's session and could head higher at any time. The subsequent rally could be quite strong, and the initial upside target is at $12.
has led the sector for a number of weeks now, having broken out of a consolidation pattern that held the stock under $7 for nine months. This China play has charged higher since clearing that level, and it's now trading near a two-year high. Price action in the last two weeks shows a miniature cup-and-handle pattern with resistance near $9.50.
This price level aligns with a big gap posted back in October 2008. The stock has held up well following a nasty bear raid at the start of the month, and this is bullish, but resistance at this barrier might take a little more time to "give way." Once cleared, this stock can trade into double digits for the first time in two years and head toward stronger resistance near $13.
has outperformed its peers in the last four years and is currently trading just 10 points under the all-time high at $40.63, which was posted in July 2007. The stock topped out near $31 (blue line) in January of this year and dropped into a deep correction that found support in the mid-teens. It returned to within $0.50 of resistance on Oct. 1 before pulling back.
Accumulation has been very strong this year, with on balance volume now sitting at a higher high than the January peak (red lines). This is a bullish configuration that supports an immediate breakout, even though the short-term pattern isn't giving any indication that price is setting up to move higher. That could change in the weeks ahead.
topped out at $33.68 in January and entered a major decline that dropped price into single digits at the June low. It bounced off that level in a choppy recovery that finally gathered momentum in late September. The stock is now trading near a five-month high but is seriously lagging its solar-sector peers.
The price action has crisscrossed the 200-day moving average four times in the last two weeks. This looks like a healthy consolidation at new support that will soon give way to a strong rally leg. However, there's a ton of resistance between $18 and $22 (red zone), so expect progress to be marred by whipsaws until this price zone finally gets cleared.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley was long SOLR, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product from TheStreet.com that outlines his charts and analysis. Farley has also been featured in
. He has written two books:
, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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