After trimming more longs today, per my StockTalks, I have unusually high levels of cash to start this week. Late last week, hot money started entering very speculative stocks. This is many times a sign that the uptrend may continue and the next move higher will be fueled by more confident bulls willing to take more risks hence allocating money towards speculative plays. With that being said, I narrowed down my list and initiated a swing trade in a highly speculative stock in a recently hated sector, solar energy.
Canadian Solar (CSIQ) description per Yahoo Finance:
Canadian Solar Inc. engages in the design, development, manufacture, and sale of solar power products in Canada and internationally. The company offers solar cell and solar module products that convert sunlight into electricity for various uses. Its products include a range of standard solar modules for use in a range of residential, commercial, and industrial solar power generation systems. The company also designs and produces specialty solar modules and products consisting of customized modules that its customers incorporate into their products, such as solar-powered bus stop lighting; and specialty products, such as portable solar home systems and solar-powered car battery chargers. In addition, it sells solar system kits, a package consisting of solar modules produced by it and third party supplied components, such as inverters, racking system, and other accessories, as well as implements solar power development projects. The company sells its products under the Canadian Solar brand name. Canadian Solar Inc. offers its standard solar modules through a direct sales force and sales agents primarily to distributors, system integrators, and original equipment manufacturer customers, as well as to solar projects; and specialty solar modules and products to the automotive, telecommunications, and light-emitting diode lighting sectors. The company was founded in 2001 and is based in Kitchener, Canada.
CSIQ had two highly bullish days last week with very strong volume (see annotated charts below). Today was a lighter volume red day, which is considered healthy consolidation. I initiated the trade at an average of $3.50 today and would like to see it consolidate between $3.40 and 3.50 before breaking higher. As of October 14th, Yahoo has shorts holding about 19% of the float, which is likely much lower now after last week’s action. If we can hold above $3.30 area, I expect another surge higher on strong volume may take place, confirming the bullish activity from last week. Below $3.35/$3.30, I’d be very concerned with this trade, so I’d likely be stopped out by then and looking to re-establish the trade if things settle down (I try to keep my StockTalks fully updated on my moves). The problem with speculative plays is that they can definitely fall well below support levels only to surge higher anyway. This is another reason this trade is considered very risky. If I am stopped out, but I feel the bulls are still in the trade after things settle down, I will look to get back in. The other option is to take a half-stop and buy back lower. Then on a bounce, I trim the position again (best used with high volatility). This allows me to reduce my cost average for the trade, but does increase the risk in doing so.
On highly speculative plays as such, my positions are obviously smaller due to the increased risk. I feel I can better absorb this risk in the portfolio due to being in such high levels of cash. With an unconfirmed earnings date set for November 14th, I am not concerned with what that news may be. I expect to be out of this stock as soon as this week, but if the trade goes well, I will likely let my profits ride longer and see if CSIQ can continue riding higher after being beaten down so much these past few months.
Again, this is a very risky trade, so the odds of success are therefore lower than my normal swing trades, especially if the market uptrend starts to breakdown.
As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long CSIQ, but positions may change at any time
