Shares of renewable energy company SolarCity Corp (NASDAQ:SCTY) took a deep, deep plunge earlier this week after the company reported a wider-than-expected loss for its fiscal first quarter. This, coupled a lowered outlook, had investors and analysts up in arms as the stock revisited its February lows.
Worse, SCTY stock looks like it has more downside to explore.
Volatility is extraordinarily high in SolarCity at this juncture. The best advice I can give is to just stay away from SCTY until it can show a more promising fundamental and technical picture.
In many ways, earnings reports are like the weather — we can make an educated guess, but ultimately there is risk of a notably better or worse outcome than expected. More importantly, investors’ reaction to the earnings can diverge from expectations, too.
Over the course of my career, I have seen good earnings and outlooks lead to negative stock moves, and vice versa. I have seen stocks initially surge on earnings, only to quickly come back down to earth … and I have seen initially negative price reactions that turn into big bull stampedes.
We all have.
However, when earnings, reactions and technical pictures look ugly all at once, that’s a clear signal that we shouldn’t fight. And I think SCTY stock not only falls into this category, but it has for some time.
SolarCity (SCTY) Stock Charts
A look at the multiyear weekly chart shows that since topping out in early 2014, SolarCity stock has been in a structural decline, which through the lens of price action is shown with a series of lower highs and lower lows. As recently as last December, SCTY stock had retested the upper end of its down-trending channel (black parallels) in the high $50s, only to drop into the teens just a number of weeks later.
The most recent bounce off the February lows also just created another lower high, which is to say that unless this trend changes, bulls are best to stay away from this stock.
On the daily chart we see that Tuesday’s big post-earnings drop in SCTY stock came after an already steep 40% drop off the April highs.
Although Tuesday’s selling pushed the stock into the February lows, we have yet to see any meaningful bullish reversal that would allow us a better trade for a counter-trend rally.
As such, for the time being, most investors and traders should stay away from SolarCity; only the quickest of day-trading gunslingers may find opportunity in SCTY stock for now.
Maybe a push below the February lows around $16.50 will bring about a better bullish reversal, but again that remains to be seen.
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