Why SolarCity Corp (SCTY) Bears Shouldn't Worry

Analysts have high hopes for SolarCity Corp (NASDAQ:SCTY), but the stock could have some short-term hurdles to clear first

by Josh Selway

Published on Dec 28, 2015 at 12:27 PM
Updated on Dec 28, 2015 at 12:30 PM

Despite a weekend Barron's article that underscored the optimism following a recent U.S. budget agreementSolarCity Corp (NASDAQ:SCTY) -- unlike this search engine mogul -- is moving lower today. Shares of the solar stock have fallen 1.3% to $51.30, bringing their year-to-date loss to over 4%. This is certainly good news for bears, in and out of the options pits.

For starters, SCTY's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 1.13, meaning put buying has been more popular than call buying recently. Then there's the solar stock's Schaeffer's put/call open interest ratio (SOIR). At 1.37, this reading is higher than 84% of all others from the previous 12 months, informing us of an unusually high put-skew among short-term speculators. 

Short interest is also extremely elevated on SCTY. Bears control roughly 65% of the stock's float, and it would take them over eight days to buy back their bets, at the equity's normal daily volume. And while high short interest can often be a bullish contrarian indicator, these bears show no sign of stopping. Specifically, short interest surged by another 19% during the two most recent reporting periods. In other words, extended losses may only embolden bears. 

Meanwhile, analysts have remained almost completely bullish on the equity. Eleven of the 13 brokerage firms with coverage on the shares say they're a "buy" or better, and not a single analyst recommends selling them. Additionally, SCTY's average 12-month price target comes in at $67.12 -- territory not explored in over a year. 

All in all, it appears SolarCity Corp (NASDAQ:SCTY) could be due for a breather. The shares recently backed down from resistance in the $58-$59 region -- which stifled rally attempts earlier this year -- and its 14-day Relative Strength Index (RSI) now sits at 69, near overbought territory. 

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