Is This The Right Time To Go Short On Fuel Cell Stocks?

Back in May, I wrote a piece here recommending buying fuel cell stocks, specifically FCEL and BLDP. My logic then was that, while the market hunger for risk made no sense to me given the trajectory of the coronavirus news and the state of the economy, traders should always deal with what is, not what they think they should be. On that basis, I said, it wouldn’t be long before the old favorite speculative stocks, the fuel cells, took off.

Here’s what has happened since…

As you can see, BLDP has been a consistent climber, while FCEL’s momentum was interrupted by an earnings miss. The fact that the upward move resumed after that, though, proves my point then and now. Reality has no bearing on these stocks. Still, both trades are showing a good profit, with long FCEL up 57% as I write and BLDP doing even better with a 99% profit in just over a month.

Regular readers of my work will probably be aware that my normal reaction at this point would be just to take a profit. Greed is one of your principal enemies when trading and it usually pays to simply cut and run, even if that means leaving a bit of meat on the bone for the next dog or missing out on an opportunity of a reversal.

In this case, though, I will make an exception, and here’s why…

As I said above, fuel cell stocks are frequent beneficiaries of “risk-on” environments. They are cheap, in every sense of the word and they have a compelling, easy to understand story. I mean, what sounds better than a revolutionary technology that promises power units fueled by the earth’s most abundant resource, plain old water? That is all true, except one word…

The technology is not “revolutionary”. In fact, fuel cells have been around for over 50 years in some form or another. What they have never been though is profitable.

The technology has proven resistant to all attempts to make it commercially successful. It hasn’t scaled in the way you might think it would. Unlike, say solar power, where costs have plummeted as production has increased, fuel cells are still stuck in the world where more production means bigger losses. Neither of the companies above have turned a profit in recent memory and analysts are forecasting more losses through 2021 at least.

Of course, this could be the time that things turn out differently, but betting against a constantly repeating pattern repeating again is not a particularly good trading strategy. Look at the charts from before this run up, going back to 2006 and you’ll see what I mean.

The stocks have been consistent, long-term destroyers of wealth and every previous spike has been followed by a rapid return to earth.

As I said, I rarely try to gild the lily by flipping a position, but the history here makes it just too tempting, and the big profits on the way up allow for some pretty wide stops if you reverse to a short. That is important because even though a collapse is coming at some point, the old traders’ cliché still applies: the market can stay illogical a lot longer than you can stay solvent. In other words, we could still continue higher before it all comes tumbling down.

Still, with money in the bank and the constant barrage of bad news about coronavirus in the U.S. throwing a little cold water on the “risk-on” party, now looks like a good time to flip on both stocks and turn a long into a short. They are the classic example of a “Robin Hood” stock, powered on up by an army of small app investors who see an obvious story and pay no attention to stuffy old things like profitability.

They are the current version of RIG and HTZ a few weeks ago. Both of those soared despite serious existential problems in one case and an actual declaration of intent to declare bankruptcy in another. Both fell rapidly back though, and the same looks likely for FCEL and BLDP.