Usually, if you look at a stock and its price makes no sense to you, it is you that has missed something, not the thousands of others whose trades have pushed it to where it is. Sometimes, though, when your analysis is based on fundamental value and the stock sets up for a trade, you just have to ignore that nagging doubt and jump in. That is how I feel right now about Canadian Solar (CSIQ).
The important thing here is that CSIQ does set up well based on the technical picture.
Recent declines have taken it to a level that looks like a solid support and off which it has already bounced significantly twice this year. That doesn’t guarantee that it will do the same this time of course, but it does allow for a trade with logical parameters that has a great risk/reward ratio.
If you but at current levels, around $16.80 at the time of writing, you could set a stop loss order based on a clean break of the support, at say $15.80, that would limit potential loses to under six percent. The average bounce off this level has been around $10. Even half that would take the stock to around $22, giving a profit to loss ratio of over six. That compensates for a lot of risk.
Most of that risk comes from the fact that Canadian Solar is due to report earnings next week. That, presumably, is what is pushing the stock lower, as there are a lot of rumors that their earnings won’t be great. Ironically though, in this context, that is a good thing.