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Plug Power - Getting Charged Up To Rally?

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Plug Power (NASDAQ: PLUG) shares have settled down over the last three trading sessions.

Last week, the issue spiked to $8.48 when the company's CEO made comments regarding a pending deal for the company. However, PLUG was not able to sustain that level when traders realized that the new order is for fuel cells for forklifts.

Since this product was already the primary revenue generator for the company, this news was really nothing new. After Citron Research's scathing report on the company brought the issue down from $11.72 to $5.33, investors were anticipating either a new product or new partnership after reading the initial headlines.

Interestingly, the $8.48 level holds major significance from technical perspective for a few different reasons.

First of all, $8.48 is the exact level PLUG rebounded to on March 13 following the steep decline to $5.33 instigated by the Citron Research report. Also, it represents a 50 percent rebound from its recent March 11 high ($11.72) to its March 21 panic low ($5.33).

Therefore, technical traders, who could care less about the fundamentals of the company, will be keying on this level to either cover shorts or to re-enter the issue when it has upward momentum.

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For now, the shorts are still in control as the issue has retreated to the $7.00 and has posted nearly identical closes over the last two sessions ($6.89 and $6.90). Also, PLUG is trading a lot volume in Monday's session at the $7.00 level. After not being able to maintain that crucial level off the open, PLUG declined to the double close level, reaching $6.92 before rebounding.

Along with posting similar closes, PLUG has provided traders with a key resistance level as well. After posting highs on Thursday ($7.19) and Friday ($7.15), PLUG has again attracted sellers near this level as it has peaked at $7.25 so far in Monday's session.

The bad news for the bears is that PLUG the issue has made a higher low in five of the last six trading sessions since bottoming out at $5.33. The only day with a lower low being March 28, when PLUG traded to $6.21 after its March 27 low of $6.26. While it has interrupted the string of higher lows, bulls can argue that PLUG has double bottom in place that is the protecting the low of move.

Also, it may indicate the bears are getting nervous since they must now compete with bulls that missed out on PLUG's first run and are determined to build a long position. The technical pattern of PLUG surely reveals this kind of trading activity with support slowly moving up.

So while the bulls and bears battle it out at the $7.00 level, how should the retail investor approach the issue? Answer: With caution. Since the average retail investor does not play issues from the short side, let's analyze the issue from the long side.

If still bullish on the fundamentals of the company or you're being lured in by its technical set-up, a trade would be hopeful the low of the move is in. Entering at the $7.00 level and exiting if it breaches the recent low limits the loss to roughly two points.

For the trade to be profitable, the company will need to announce a deal outside of the 'fuel cell forklift' arena to attract the fundamental investors. Or and more likely, a breakout above its major resistance at $8.48 may be the impetus to spark a covering rally that may take PLUG back to being a double digit stock.

Posted-In: Technicals Trading Ideas Best of Benzinga

 

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