Shares of solar energy technology company Sunedison Inc (NYSE:SUNE) fell sharply last Friday after its second yieldco, Terraform Global Inc (NASDAQ:GLBL), went public. SUNE stock has been in a free fall since topping out two weeks ago on July 20, but now increasingly looks oversold as it tests a confluence support area.
Active investors and traders could look to buy SUNE stock for a bounce after the next bullish reversal day.
A “yieldco” is a company entity that engages in long-term power providing contracts and rewards its shareholders by paying out much of this cash flow. With the initial public offering of Terraform Global, Sunedison has now launched its second such yieldco in a little more than 12 months.
On July 20, SUNE stock topped out after announcing the acquisition of Vivint Solar (VSLR) for a price tag of $2.2 billion in cash and common stock. Sunedison shares have since dropped more than 25% in a straight line, just as the next earnings report looms large this week on Aug. 6.
SUNE Stock Charts
Looking at SUNE stock through the lens of a multiyear weekly chart, we see that the recent sharp drop in price has simply mean-reverted shares back toward a key horizontal area of support that acted as resistance until as recently as February.
The sharp breakout in February became overextended in mid-July, and the acquisition of Vivint Solar served as a good excuse for investors to take profits. In the bigger picture, a retest of a major previous area of resistance — just like Sunedison just pulled off — can be labeled as constructive price action.
I also would point out that SUNE stock last week again reached the lower end of the Bollinger Bands (blue lines), which could act as some support.
On the daily chart, we see that the 25%-plus selloff in SUNE stock over the past couple of weeks has brought shares back to their 200-day simple moving average (red line) and the horizontal line of support (orange dotted line). Meanwhile, the stochastic oscillator is also once again deeply oversold and at levels that previously led to good-sized bounces in the stock.
Active investors and traders may want to await Thursday’s earnings report before initiating long positions in the stock. Any further selling in Sunedison would simply further exhaust the stock and ultimately lead to an all the more meaningful bounce back higher.
Alternatively, should SUNE stock gap up and rally after earnings, it likely would be a good sign that the stock is ready to bounce toward the $27.50 area.
Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!
Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
