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SolarCity: Legal Troubles Now Loom Over SCTY Stock

I'd personally stay away, but any interested traders should watch the price action around the 200-day SMA


While there are plenty of interesting solar stocks for traders and investors to follow, not all are created equal. On one hand, you have First Solar (FSLR), which a couple of weeks ago rallied sharply to new multiyear highs and has since settled into a constructive-looking consolidation phase. On the other hand, you have SolarCity (SCTY), which has tumbled close to 40% since late February, causing some significant technical damage.

scty-stock-solarcity-solar-stocksJust yesterday it was announced that The Shareholders Foundation had brought a lawsuit against SolarCity on behalf of some of the company’s shareholders. The lawsuit accuses the company of being in violation of Federal Securities laws, as on March 18, SCTY said its previous financial statements should no longer be relied upon.

This is not the kind of headline I want to get in front of — long or short.

Along the same vein, last Friday I advised that because of the recent lawsuit which local review website Yelp (YELP) is dealing with, it is best to stay way from the stock on the long side for the time being. Despite the multiweek selloff in SCTY stock, I view the situation similar to that of Yelp in that such heavy accusations can rattle the stock more than most traders can handle.

Simply put, there are easier opportunities out there. But … how bad are things for SolarCity shares?

SCTY Stock Charts

After the announcement of the lawsuit, SCTY stock unsurprisingly continued its recent losing streak and fell another 8.09% to levels it last saw in December.

Looking at the charts of SCTY stock, there isn’t a ton of trading history to go by (SolarCity went public in December 2012). From what little we do know, though … SCTY shares have had some significant corrections along the way, but the current selloff looks nastier in terms of slope, momentum and duration.

With yesterday’s selling, SCTY stock touched its 200-day simple moving average (red line) for the first time, and through a pure technical lens, this has the potential to offer a little support and lead to a bounce, particularly considering that shares have fallen for five straight weeks.

scty daily
Click to Enlarge

More importantly, though, given that the news of the aforementioned lawsuit is still brand-new, it is unnervingly uncertain how SCTY stock will react in coming days or weeks.

For the active investor, I urge patience if you want to get involved in SCTY stock in any way. Personally, if I see that the 200-day SMA does prove to be supportive in coming days, a bounce trade back up toward previous support in the mid-$60s could set up.

But if SCTY just continues to plummet, I’ll stay away — on both sides.

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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.

Article printed from InvestorPlace Media,

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