Trade of the Day: SolarCity (SCTY)

Advertisement

We’re opening a new bearish trade on SolarCity (SCTY).

Using the Technical Opportunity Screener from Profit Scanner, we’ve identified a “symmetrical continuation triangle” pattern on SCTY.

SCTY

The symmetrical continuation triangle pattern was completed on June 29, when SCTY closed below the support level of the pattern.

Based on the pattern, we expect the stock to drop to a target price range of $39-$42 (although our trade target is a bit more shallow than this near the lows of the 2014-2015 channel).

Besides the technical breakout yesterday from a symmetrical triangle, SCTY is facing some fairly serious fundamental headwinds. The few companies in this industry rely to a great extent on the Investment Tax Credit, which is likely to change in the near future, and the fact that there isn’t a lot of history for the assignability for its leases.

Unfortunately, it looks like investors are catching on to these two important sources of uncertainty, and, in this market, that is a problem. We are currently targeting the bottom of the 2014-2015 channel under $50 per share. However, continued volatility in the market could easily send this stock much lower.

‘Buy to open’ the SCTY August 52.50 Puts for a maximum price of $3.30.

Before we go, a note on our Transocean (RIG) trade we brought you last week. We recommend closing the RIG puts at about break even as the stock stabilizes at near short-term support. The offshore-drilling and production business is likely in trouble in the long term. However, with oil prices remaining flat, short-term prospects may actually keep the stock afloat.

Over the last few days, buyers have been willing to step into RIG, even on fairly bad market news. While we don’t expect that pressure to send the stock much higher, it means that the time-value in our puts is at a much greater risk. We would prefer to close the position at this point and reallocate that capital to the SCTY trade.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.

You can learn more about identifying price patterns – including symmetrical continuation triangles – and using them to project how far you think a stock is going to move in their Advanced Technical Analysis Program.


Article printed from InvestorPlace Media, https://investorplace.com/2015/07/scty/.

©2024 InvestorPlace Media, LLC