Am I (SOL)?

I couldn't resist...

In my last entry, I said I was going to give more detail about my only remaining position, (SOL). I've covered my decision to hold, and why that might not have been the best way to handle the stock.

Still, if (SOL) was the institutionally sponsored winner that I suspected, I should've been able to count on it to find support around the 10 week or 50 day moving average line. Instead, last week it sliced through these levels on high volume, dropping as low as $16.33 a share - less than 10% above my buy point.

As a CAN SLIM investor, I remind myself that the reason for a stock's price and volume action is not important - reading the action correctly is. However, it's possible with (SOL) I've found a rare exception to this principle.

I have to admit I was baffled by the drop. How could institutions be piling into this stock four weeks ago only to rush for the exits last week? Yes, the solar group has cooled off and the Chinese market is struggling, but other solar stocks - even the real high fliers like (SOL) - were not taking this kind of damage.

Some speculated that it was the secondary stock offering the company had announced pressuring shares. That didn't make sense to me, as it had been announced a couple of weeks prior, and the stock had held up for about a week after the news.

Then I was pointed to a blog entry at Seeking Alpha that discussed the situation. I don't read many articles about stocks I own, and I don't usually put much credence in thost I do read. This article, however, was delivered calmly and made a great deal of sense.

If I understood it correctly, the story goes something like this. (SOL)'s prospectus came out and described the secondary offering, including that the shares would price based on the average closing price of the five days prior to the pricing day. Because the market in general and solar group in specific were week, the very institutions that had been buying (SOL) could now sell it and short it - taking profits and virtually guaranteeing themselves a low price on the secondary offering.

This might all sound too simple, but as further evidence, the moment the news came out about 11:30am that the stock would price on Tuesday it seemed to find a bottom and closed up for the first time in a week. Compare that to Thursday, when (SOL) announced yet another 6 year contract to supply silicon wafers to ARISE Technologies and the stock still closed down 10%.

The situation looks like a golden opportunity for the institutions, which has created a good opportunity for the individual investor. Based on trading the last four days, I think the secondary will price around $18 a share (if I'm understanding how this stuff works). After that, I think this stock can quite easily get back to the low to mid 20's in the mid term, and something around $80 a share in two years.

I will look to add to my position if the stock crosses the 50 dma - currently that's around $19.30 - on big volume. If I do this, I'll keep a tight stop - around 5% - just in case I'm wrong about the whole thing.

-Geoff