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Chart Analysis: SunPower Corp. (SPWRA) is a stock I have been watching for a while as it appeared to be forming a major bottom. It benefited from the surprisingly strong sales numbers from LDK Solar (LDK) on Monday and rallied sharply on good volume. This could be the burst of momentum needed to complete the bottom formation.
From an historical perspective, SPWRA traded over $130 per share in 2007 and actually was still over $100 in 2008 before starting its long-term slide. It now appears to be forming a reverse head-and-shoulders (H&S) bottom formation. Several sources have a book value for SPWRA near Monday’s closing price, and it has a relatively high short interest, which is also a plus.
- The left shoulder (LS) in May had heavier volume than the head or right shoulder (RS)
- Initial swing support is at $12.78 with key support at $11.64 (RS)
- Neckline is at $15.20 with resistance from June at $15.34
- Volume and momentum patterns are consistent with a reverse H&S bottom formation
- 38.2% resistance is at $19.10 with 50% resistance at $22
What It Means: A strong close above the neckline will complete the bottom formation and give upside targets in the $20-$21 area. If this occurs, SPWRA could be a tech leader in 2011.
How to Profit: Strong gains on Monday make me leery of chasing the stock as it closed Monday on the highs at $14.62. I would look to buy SunPower Corp. (SPWRA) at $14.08-$14.22 with a stop at $12.47. Raise the stop to $13.07 on a move above $15.34. If SPWRA closes above the neckline before the buying zone is hit, I will update buying zone and stop placement.
Tom Aspray, professional trader and analyst, serves as senior editor for MoneyShow.com. The views expressed here are his own.
