Solar energy stocks saw a flurry of news over the past couple of days, and along with it some outsized rallies in some solar stocks. Among them, solar energy services provider SolarCity (SCTY) on Tuesday rallied more than 17% on the back of an acquisition, putting SCTY stock back in a good position to be bought on dips.
SolarCity on Tuesday announced that it plans on purchasing solar panel manufacturer Silevo, and SCTY is going to expand upon that company’s plans on constructing one of the world’s largest solar panel factories in Buffalo, N.Y.
(Recall that earlier in the week, New York Gov. Andrew Cuomo signed a petition allowing Tesla Motors (TSLA) to keep its retail stores in the state. Is New York planning on becoming a hot spot for clean energy companies?)
More news flow out of the solar energy space came on Monday when First Solar (FSLR), a leading designer and manufacturer of solar modules, was hired by energy company Tenaska Solar Ventures to build a new solar facility in California. FSLR stock already rallied on Tuesday, acting as a precursor to Tuesday’s news and rally in SolarCity.
All the positive vibes led to a strong reaction from solar stocks and other clean-energy-related companies, putting many charts back in positive postures.
SCTY Stock Charts
Since SolarCity became a publicly traded company, SCTY stock has traced out a defined uptrend line (black line), but from autumn 2013 through the early part of 2014, SolarCity became more and more extended from this line.
Ultimately (like any stock that rises too quickly), a mean-reversion move took place, which after a near 50% correction over the course of two months finally moved the stock back to the big-picture uptrend line. After a few weeks of basing, SCTY stock slowly again began to move higher, which with Tuesday’s big rally confirmed those recent lows.
On the daily chart, note how meaningful Tuesday’s breakout of the multiweek bottoming formation was. The rally also came on a huge spike in volume and broke the stock past its 100- and 200-day simple moving averages (blue and red, respectively) all in one go.
For active investors and traders, SCTY stock now is all about the time frame.
In the immediate term, SolarCity looks increasingly overbought following the week-to-date rally. Instead of chasing the stock higher, a little consolidation time in coming days/weeks would do good to get the stock ready to reset itself for another move higher. However, any consolidation/retracement in the near-term should keep the stock above the $57 area.
Specifically, I am looking for SCTY stock to consolidate and would be prone to buy it on a little dip for an upside move into the low $70s in coming weeks.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.