Don't Be Like Elon Musk, Take Profits in SolarCity Now
Is the sun setting on SolarCity (SCTY) ?
Its shares have risen more than 24% after falling to a low of $16.50 a week ago. At that point it looked like a 10% bounce was likely after a 20% selloff overreaction on missed earnings.
Since then the alternative energy company, backed by Tesla Motors (TSLA) - Get Report founder and CEO Elon Musk, reached a high Tuesday at $20.87. Our target range a week ago was around $19.85 per share, betting the stock would fill the 19% gap. The stock has done what we predicted and then some. But it's now time to take profits and wait for a pullback.
SCTY closed Tuesday at $20.50. The shares are down 59.8% so far on the year, compared with a 0.2% rise in the S&P 500 (SPX) index. While the shares have risen some 25% off their 52-week low of $15.05 reached in February, SCTY is still down 67% from its 52-week high of $63.12.
The question is, where's the stock heading next? Take a look at SolarCity's chart, courtesy of TradingView.
While the stock has done exactly what we expected, filling the 19% gap it created a week ago, the stock is still technically broken. The shares are still well below their critical moving averages. The closest benchmark to Tuesday's close is the 50-day average at $26.24, but that translates to a 28% move upward -- a tall order, especially after the stock has already returned some 20% in a week.
Fundamentally, it will be fresh on investors' minds that the company not only reported a wider-than-expected first-quarter loss but cut its 2016 forecast for solar panel installations. Jim Cramer said the company's conference call was one of the worst of the year. The combination of weaker growth and financials that are seemingly hard to understand will add to the selling pressure with each move upward.
Even if SCTY were to move upward towards resistance at around $24.28 (red arrow), this, too, would represent an almost 20% rise. That's not a bet I'm willing to make in light of the weak technicals and tepid fundamentals. All told, with these factors serving as headwinds, taking profits now and waiting for another pullback to around $18 is the smart play.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
