Shares of solar energy company Sunedison Inc (NYSE:SUNE) rallied Wednesday on the back of news that the company, along with TerraForm Power Inc (NASDAQ:TERP), struck a deal with Duke Energy Corp (NYSE: DUK), who will buy its solar energy from four combined plants there.
As a result of the rally, SUNE stock reached the upside target from a trade idea I laid out in early March, but shares have the potential to move even higher from here.
SunEdison’s aforementioned deal, announced March 31, will involve four interconnected solar plants in North Carolina, expected to have a total output capacity of 26 megawatts. The electricity from this plant will be sold to Duke Energy in a 15-year purchase agreement.
On March 12, I shared the positive posture of SUNE stock — both from a news-flow perspective and on the charts. After Wednesday’s 4.6% rally on good volume, SunEdison has reached my initial upside target at $25.
That said, the bigger picture remains the same as it did in early March: bullish.
SUNE Stock Charts
Looking at the multiyear weekly chart, we see that after a long rounding bottom phase from 2011 into late 2013, SunEdison stock finally broke past resistance (red dotted line), which led to a meaningful rally into the summer of 2014. SUNE then came under pressure along with the rest of the energy sector as the shock of falling oil prices caused a spike in volatility in the sector.
Not all energy stocks are created equal, however, and SUNE stock again began to rally after a final selloff last October (blue bubble). In that sense, the entire price movement from last summer into early March could be looked at as a bigger-picture consolidation phase that’s constructive in nature and that should ultimately release SunEdison higher.
On the daily chart, we see that Wednesday’s rally pushed SUNE stock past its March highs and to levels it has not seen since 2008, while also further separating it from its summer 2014 highs.
While I am not a big fan of reading too much into moving averages, depending on a stock’s character, it can make plenty of sense to do so from time to time. Presently, I note that SUNE stock’s 200-day moving average (red line) is slowly curling back up after having a flatter slope in recent months. Furthermore, its 50-day MA in early March pushed back above the 200-day and is showing better separation, which is a bullish sign.
Active investors that took my initial trade setup from March 12 and bought the stock around $23.50 could now take partial profits around the $25 area while keeping at least half a position on. Investors just now looking at SUNE stock could consider buying it at $25 (or just slightly higher) for a next price target near $27.
Any bearish reversal would negate the immediate-term setup, but SunEdison still looks well-supported through a multiweek lens.
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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.
