To anybody who bought into Real Goods Solar, Inc. (NASDAQ:RSOL) back in mid-May when the stock was raging, sorry about your luck. RSOL shares jumped from $1.75 to a peak of $7.17 in just two days. That was just enough time - and excitement - to draw in a slew of new buyers, only to punish them over the next month or so as the stock made its way to a low of $2.13 by Monday of this week. Ouch.
The problem is, it's not like this is something we've never seen before. No, veteran traders know all too well that the recent action from Real Goods Solar is nothing unusual at all... the euphoria surge often ends with a draining fizzle, punishing traders who were simply trying to chase a trend.
You know what the solution is? Take a step back, look at the bigger trend, and be willing to get in at a point when nobody's excited. That's what's going on with RSOL right now.
The nearby weekly chart tells the tale - Real Goods Solar, Inc. has been in an uptrend since late last year. The crazy surge from eight weeks ago was driven by a concentrated wave of good news. One of those news items was encouraging news from other solar panel makers and installers. Another was encouraging earnings results from RSOL. Whatever the combination was, it worked - the stock skyrocketed because traders were pleasantly surprised by the unforeseen upside from this name.
Then reality struck. After having a couple of days to do the math and weigh the odds, investors realized that $7.70 didn't make sense for this particular stock. Welcome to trading.
None of this is to say Real Goods Solar is a poor company, or a stock not worth owning. It is to say, however, that a stock is often not well connected or rationally linked to the underlying company. And for RSOL, speculators have been in the driver's seat for a while. Yesterday's news, as good as it was, has little to do with the stock's budding upside.
So now what? Well, this is a stock that has rewarded buyers who have stepped in on the dip like the one RSOL has made over the past few weeks. Earlier this week we also saw Real Goods Solar, Inc. shares find support at their 100-day moving average line. It's subtle, but waiting for the obvious with this stock hasn't worked very well.
Bottom line? Sometimes, you just have to take a swing.
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