SolarCity (SCTY) is the epitome of a story stock. It has a special place in this latest cycle of the bull market as a younger brother to TSLA, since Elon Musk is its Chairman and largest shareholder. While solar stocks were one of the hardest hit sectors in the high valuation sell off of earlier in the year, many such as SCTY have yet to make a significant dent into their peak to trough declines. The year to date chart of SCTY shows the nearly 50% decline off of the late February highs to the lows made in early May, with the stock failing to make a NEW higher high since breaking down below $70 in March:
It is also important to note the declining 50 day moving average (purple) showing the stock’s waning momentum over the last 2 months and offering further credence to the series of failed rallies. Backing the chart out to the 1st of January 2013, the stock appears to be straddling fairly significant long term support at $50. A break on volume at this level would not see real support until the prior low at $45.79 and then the November 2013 low near $42.50:
Even though the stock is down 40% from the highs, the stock has historically been prone to massive short squeezes given the 26.5% short interest and the high concentration of shares outstanding by a few top holders (the top 5 hold about 45% of the shares, which includes Musk and the 2 founders). The stock’s 1000% run from its late 2012 IPO to the highs earlier in the year have placed it in a very special spot among its peers and the broad market. However, as it relates to options prices (57 vol vs FSLR at 40), implied volatility is quite low relative to its recent history and how much the stock has actually been moving. The one year chart of Implied Vol (blue) vs Realized Vol (white) shows implied volatility dipping below realized volatility.
Put together low options pricing and a potential technical break, and SCTY might offer an interesting setup for a trade in the coming weeks. We have our eye on this one at this technical pivot area.