I last blogged about First Solar (FSLR) on April 12, 2012, here. FSLR entered into the “Blue” which meant the stock price had a negative transit through EBV-3. Here is the chart I posted in that blog.
First Solar with weekly price bars, EBV Lines (colored lines) and model price (dashed line)
For those interested, a daily updated chart of FSLR subsequent to this post is maintained on Facebook, here.
Since April 12th, FSLR hit a low of $11.43 on June 4, 2012, almost 50% lower than the price noted on the above chart. This is why investors’ should always pay attention when negative transits of EBV-3 occur. I call this “Going into the Blue”. The best strategy, in my opinion, is to head for the sidelines (sell the position) and see what happens. Corporate events, such as write-offs of assets on the balance sheet, jettison of low margin businesses, and management changes are the most popular events. A number of corporate actions can and will occur. On a number of occasion’s companies that enter EBV-3 may NOT make it. They go to zero. This is why these situations are best avoided and may cause a lot of heartache and investment losses.
As I have written many times in this blog about investment situations where the equity price of any security, I fish in the large cap pond, transits above EBV-3. I call this “Coming out of the Blue”. “Coming out of the Blue” investment strategy is a very profitable one for those investors’, traders who invest when an equity positively transits above EBV-3. Would I place my whole portfolio into this one situation? No! I would diversify in names, industries and even countries. The one name you least expect will probably yield investors the most profit, often times that’s the nature of investing.
When companies transit above EBV-3, this is a positive sign. There can be a number of reasons for this transit, depending on the circumstances. Also, the positive transit can occur before the positive news is publicly available.
Here is our long-term model price chart of FSLR.
First Solar Inc. with monthly price bars, EBV Lines (colored lines) and model price (dashed line)
Please note each price bar is one month in duration. FSLR, was a hot Nasdaq stock, and in 2009 traded at EBV+7. In 2010 and half way through 2011, FSLR tried to hold EBV+5. Having failed to hold EBV+5, FSLR went into free fall. FSLR wrote off goodwill and closed plants. In my previous blog on FSLR on April 12, management noted a very competitive operating environment.
What has changed?
Since the end of July, FSLR has been on a tear. The stock is up over 50% for the month of August. (I have included trading on August 20th.) I have scanned the financial news and haven’t seen anything obvious.
I’m only pointing out the action on First Solar. The company has yet to transit positively above EBV-3 or $24.78 and my experience using this strategy (“Coming out of the Blue”) tells me to wait for the actual event or “don’t jump the gun”. My purpose here is to alert readers of the potential of this happening – “Coming out of the Blue” – which could be of interest. I know this is interesting to me!
Again my purpose here is not to recommend stocks to my readers. My purpose is the help investors, traders and persons interested in using our Facebook tool for security analysis for more profitable security selection.
As always, let’s see what happens!