FuelCell Energy Pulling Back To Support

05/24/04 09:23:03 AM

by Kevin Hopson

FuelCell Energy broke out of a bullish triangle formation last month and is now pulling back to long-term support levels.

Security: FCEL
Position: Hold

I touched on FuelCell Energy (FCEL) about a month ago. At that time, I recommended accumulating shares of the stock, as FuelCell had broken out of a five-month bullish triangle formation. My upside target for the stock was $21.00, which was calculated by taking the base of the triangle ($18.00 - $11.00 = $7.00) and adding this figure to the breakout point ($14.00 + $7.00 = $21.00). As you can see in the chart, FuelCell rallied over 40 percent from the triangle breakout and nearly reached my price target.

Graphic provided by: Stockcharts.com.

So what are the expectations now that prices have pulled back? FuelCell is currently bouncing off support around the $14.40 level, which is the site of the stock's 100-day moving average and the 61.8 percent retracement from the Dec. '03 to April '04 rally. Additionally, FuelCell's 150-day moving average ($14.29) is right below this level. So the stock should find short-term support in the $14.30 to $14.40 range.

If this key support area eventually gives way, the stock could see a further pullback to the $13.00 to $13.40 range. This is the site of FuelCell's 200-day moving average ($13.39), as well as the two converging trendlines from the prior triangle formation. If you look at the bigger picture, you will notice that December's uptrend line is also acting as the bottom of a rising channel formation, as illustrated by the blue trendlines. This should act as ultimate support for the stock. Though I would hold for the time being, riskier investors might consider buying at lower support levels.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.