FuelCell Energy Showing Signs Of Bottoming Out

08/23/04 09:38:45 AM

by Kevin Hopson

A break of short-term resistance last week may have confirmed a bottom reversal in FuelCell Energy.

Security: FCEL
Position: N/A

FuelCell Energy, Inc. (FCEL) has been in a strong downtrend since mid-April, when the stock topped out around the $20.00 level. However, over the last two-and-a-half months, FuelCell has been showing bullish divergences on the daily chart. Notice how the moving average convergence/divergence (MACD) has been moving sideways to slightly higher since early June, while the stock price has continued to trade lower. Additionally, the relative strength index (RSI) has been showing similar action since early July. These positive divergences are often a sign of a forthcoming bottom.

Unfortunately, it is difficult to predict when bottom reversals will occur in this situation, and divergences can stretch out for many months (or even years). This is why it is important to look at other elements of the chart. For example, notice how prices had been stuck between the median line of the black pitchfork and the 1B channel line until late last week. Because FuelCell recently breached the black median line and its 10-day and 20-day moving averages, which had acted as resistance for nearly three months, the stock has likely put in a short-term bottom - if not a significant bottom.

Graphic provided by: Stockcharts.com.

If so, the next upside target appears to be the $9.50 to $9.80 range, which is the site of the stock's 50-day moving average ($9.78) and the top parallel line of the black pitchfork. If FuelCell can take out further resistance here, it will likely indicate a significant bottom in the stock price. Since short interest for the stock remains high at 6.5M shares (or roughly 6.5x average daily volume), there is plenty of potential buying pressure to push FuelCell higher in the near-term. As a result, investors with a high risk, high reward mentality might consider buying on weakness.

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.