First Solar Chart Looks Toppy: Analysts

(First Solar trading story updated for Goldman Sachs conviction buy rating)

NEW YORK (TheStreet) -- First Solar (FSLR) is right back near the top of an established trading range, and even for those dubious of technical trading triggers, one has to at least raise the question: Is it again time for a FSLR short?

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First Solar climbed near the $150 mark last week, and on Monday morning, shares of the solar industry bellwether popped by more than 4% after Goldman Sachs added First Solar to its conviction buy list with a price target of $165, and contends that First Solar may exceed the price target by 15%.

It's interesting timing for a buy call on First Solar, since its shares ended last week at the high end of a trading range within which First Solar has failed to move higher in a year and a half.

Last Friday morning, for example, the day after First Solar neared the $150 mark, its shares were back down near the $145 level.

The Goldman Sachs conviction buy call on First Solar may be good for a day or two of bullish action in First Solar shares, but will it keep the shares above what has become an oft-repeated trading ceiling for First Solar? Goldman's recent track record in solar calls isn't perfect either. It's Asian-based solar team told investors to sell shares of China's Jinko Solar ( JKS) in December, and Jinko has risen 33% since the Goldman downgrade.

Goldman's New York-based solar team argues in its First Solar upgrade that its shares are attractive at these levels given that the solar sector will avoid a crash in 2011 and grow at a healthy clip of 13%. Goldman also recommended a buy of Germany's leading inverter company, SMA Solar, and Chinese polysilicon giant, GCL Poly, according to a Bloomberg report detailing the Goldman note.

One major news point moving all solar stocks higher last week was seeming resolution to the yearly debate in Germany over solar subsidy cuts. Even if it dictates lower pricing, solar trading suggests that avoiding the worst-case scenario of a hard cap in Germany was the important battle won for the industry. Skeptics maintain that pricing will fall steeply enough in solar to make this bullish argument look foolish by in 2011.

If First Solar is indicative of trading sentiment in the solar sector, the recent gains among all the solar stocks raises the question of whether a sector that has always been prone to sudden shifts in sentiment is set for one more turn, and this time to the negative. On Monday morning, it wasn't just First Solar, but Jinko Solar and the rest of the low multiple Chinese solar stocks continuing last week's rally.

It's too facile an argument to make as a trigger to trade, but it's always worth considering the peaks and valleys in solar trading. Trina Solar ( TSL), JA Solar ( JASO) and Suntech Power ( STP)continued to move up on Monday. None of these companies is right at the top of its trading range yet, but many of the Chinese stocks are nearing high levels not seen since January 2010, even if none has had as well-defined a trading pattern as First Solar over the past year and a half either.

ReneSola ( SOL) and LDK Solar ( LDK) continued to be among the biggest gainers in the Chinese solar stock group on Monday, with LDK up by close to 7% and Renesola up 3%. Over the past five trading sessions, LDK has set the pace with a 16% gain.

First Solar shares climbed 9% since last week.

Street analysis isn't going to be based on trader lingo like "resistance levels" and "trading floors," and there are plenty of analysts that have First Solar price targets well above Thursday's close. However, the First Solar chart can't be entirely ignored. From mid-2009 through the present, First Solar shares have traded in a range that has rarely deviated from the $120 to $150 mark.

In light of the First Solar trading pattern, and the fact that solar is a heavily shorted, and short-term trader friendly sector, as First Solar reaches its "resistance point" above the $150 mark, it's probably at least a fair moment to reflect on what positive and negative catalysts could move First Solar shares one way or another in the near-term beyond Goldman Sachs call to buy shares of the U.S. solar company.

As Aaron Chew, analyst at Hapoalim Securities noted, one doesn't have to be a technical trader -- which he isn't -- to look at the First Solar trading chart and at least acknowledge an established trend. The analyst doesn't see a concrete negative catalyst to drive down First Solar right now, and says he wouldn't short a stock just because it has the tag of being "expensive," but says it's fair to run through the likely trading triggers that are coming in the next few months.

In the least, the Hapoalim analyst thinks that something "very dramatic impacting the entire industry would have to happen to drive First Solar up significantly more." Let's consider the possibilities....

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Potential Positive Catalysts:

An acquisition: First Solar recently acquired a solar tracker firm, but that's not the kind of mini-game changer that is going to move the trading needle higher.

China announcing a national feed-in tariff program: this has been anticipated so many times in the past year and a half that it's far from a safe bet.

Mystery markets in 2011: Even if China hasn't approved a national FIT, plenty of other Asian markets are expected to be mini-growth markets in 2011, such as Malaysia. If any of these markets exceeds growth expectations in 2011 by a wide mark -- and that wouldn't be the first time that the solar industry's power of prognostication would prove flawed -- all the companies in the sector could receive an unexpected boost.

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Potential Negative Catalysts:

The biggest potential negative catalyst in terms of solar subsidies has been taken off the table, with German politicians and the solar industry seemingly shaking hands on a deal -- even if parliamentary approval hasn't been achieved. The U.S. extended the cash grant program for solar projects for one more year, too.

Yet these positive developments leave other markets, like Italy and France, with the potential to produce negative solar subsidy surprises. France is the more likely of the two to surprise to the negative, and has been talking up potential changes to its solar subsidy program that could resemble a cap, though it's all very tenuous and the changes that France has already made to the negative are already discounted in the stocks.

However, the bigger issue could be Italy, where recent bullish growth projections for 2010, if true, could mean that the Italian politicians would suddenly find themselves in a similar position to Germany with fear of a cap to slow growth rising as an issue. It's probably a long shot, but the bottom line is that there don't seem to be positive subsidy surprises on the horizon, while the potential negative surprises are still out there.

Earnings: First Solar generally sets the tone when it comes to solar earnings season -- and yet, if recent history is any judge, when First Solar shares are trading near the top of their trading range headed into earnings, a selloff, even on beat and raise numbers, is a potential outcome.

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Potential Positive or Negative Catalyst?

Pricing: Ultimately, it's all about pricing for First Solar, and how industry pricing among the crystalline silicon low-cost leaders from China impacts First Solar's ongoing rebate program. Does pricing hold up better than expected in the first quarter or does it disappoint, and is this disappointment recognized in February/March?

First Solar is going to sell out, it's just at what price point, and the real risk is a pricing decline that's greater than now thought.

Right now, even the Hapoalim analyst who is bearish on First Solar won't say it's a "slam dunk" short, and he also acknowledges that the pricing story did not weaken as much in fourth quarter as he would have thought.

It's either time for First Solar to finally put to rest this notion of a trading pattern, or give the technical trading triggers more credence.

One thing we know for sure, technical traders will take a look at First Solar back near $150 and break into their long-held version of a Greek chorus charting the fate of a stock, chanting in unison: "Keep trading the charts."

-- Written by Eric Rosenbaum from New York.

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