SunEdison Stock Will Move Sharply Higher Soon, and This Chart Shows Why

Comprehensive technical analysis shows that the beaten-down shares of renewable energy company SunEdison are about to make a huge bounce higher.
By Ken Goldberg ,

SunEdison (SUNE) stock has sold off dramatically in recent months, but the monthly bar chart below shows that shares of this renewable energy company are poised for a major bounce. 

Click here to see the following chart in a new window

Look closely at the decline from the July swing high near $34 and you'll see what is likely a completed five-wave pattern that has chopped 90% off that rally peak. Then, look back to the left to notice the decline in 2008 was 90% as well. Each of these two massive crashes were preceded immediately by bearish divergence sell signals (higher highs in price vs. lower highs in stochastics). These are highlighted by the bold blue lines in the price pane pointing upward and in the stochastics pane pointing downward. The red ovals pinpoint the spots where late-joining bulls became trapped, paying the highest prices of the entire rally that came before, buying higher highs in price against the lower highs in stochastics. This fracturing between money flow and sentiment historically foreshadows dynamic price action in the opposite direction. As it did in 2008, it did again this year.  

In both instances, after stochastics broke back below the 90% overbought stochastics threshold, the stock crashed by 90%, until stochastics broke below the oversold 10% threshold. From this extreme in bearishness in 2008, prices doubled (rising 100%) over seven months, shown in the yellow box at the left side of the graph, before turning back down. This time, the pattern shows the potential for a much larger increase in percentage terms. This is illustrated by the blue arrows in the yellow box at the right side of the chart. Although the 2008 bounce was only a wave (4) corrective bounce, the bounce that we should see in the next six to 18 months is one degree higher and comes after a completed decline. Both Elliott Wave and Fibonacci theories now approximate a bounce that retraces halfway back to the highs of July, a potential of 15 points. Adding 15 points to the low seen so far during the recent decline yields a measurement of $18 +/-$2.  This could allow the stock to rise 400% to 600%. 

The decision support engine makes it clear that unless the company is about to go broke, close its doors and file for bankruptcy protection, the current conditions, and potential price bounce, indicate that buying actions are appropriate, and selling actions are not. Therefore, if you're short, count your blessings and place buy stops, to protect your massive profits, at $5.25. While a quick dip to $2.50 can't be ruled out, it's not required to consider the entire decline from July as complete. If you're flat, you can establish long exposure on a break under $3 or a break above $5.25. If you're already long, there is little benefit to exiting here, as 90% of the damage has already occurred from July. Also, the decision support engine is warning that selling actions are suboptimal here. So, open the shades on SunEdison and let the sun shine in. Historical pattern recognition shows a very rally is in store for 2016!

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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