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Range-bound Trina Solar offers some bright trading opportunities

Hi Lou,

What are your thoughts on Trina Solar? I am thinking of buying some stock.



Hey Eric,

Thanks for the assignment. Trina Solar Ltd. (TSL-NYSE) is a Chinese solar company whose shares trade in the U.S. as an ADR. When examining the case for any solar company, you have to keep in mind that the holy grail for the entire sector is to reduce costs to become grid competitive. The current cost of solar-generated electrons is significantly higher than the electrons created by other means such as fossil fuels, hydro, and nuclear. Costs can be reduced in the manufacture of the solar panels themselves and there is also a push to greater solar energy conversion efficiency. Other areas that need attention are delays in permitting and speed of installation. At present, the industry is heavily subsidized which is not a sustainable model.

The research conducted on your behalf indicates that there could be up to 100 gigawatt of solar capacity installed by 2018, up from 37 gigawatt in 2013, assuming the industry can get costs under control. An investigation of the charts will help in forming an opinion on how best to proceed.

The three-year chart exhibits a similar pattern that most of the publicly-traded solar stocks have in common: the bounce off a rock bottom in December, 2012 and a robust advance in 2013. The move that started in April, 2013 when the shares were trading near $3.50 reached a high of $17.74 by late October. Since then the stock has been range-bound with support at $13.50 and resistance coming in at $17.00. What is also evident on the chart is the test of support along the 200-day moving average.

The six-month chart provides a close-up of the volatility that has provided a number of trading opportunities. The MACD and the RSI both generated buy signals in December when the shares were trading at $11.50 and then a definitive sell signal in March when TSL hit $18.50. At the time of this post the momentum indicators are neutral. The next flex point for TSL will come in May when the company reports its quarterly results.

The best way to manage this stock is to trade it in the range until there is an indication of a breakout or a breakdown. Establish a core position while taking profits at the top of the range and buying in at the bottom of the range.

Make it a profitable day and happy capitalism!

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