SunPower Stock Flashing Bullish Signal, Cheap Options

SPWR options are affordably priced at the moment

Deputy Editor
Aug 3, 2020 at 1:49 PM
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The shares of global energy concern SunPower Corporation (NASDAQ:SPWR) are on the rise today, likely propped up by a price-target hike from Credit Suisse to $13 -- a level the stock has not reached since September 2019. But before today's breakout, the stock --which is down 9% in the last five trading days -- pulled back to a trendline that suggested historically bullish returns in the next month. 

Specifically, SunPower stock is now trading within one standard deviation of its 40-day moving average after a lengthy stretch above it. For the purpose of this study, Schaeffer's Senior Quantitative Analyst Rocky White defines that as the equity trading above the moving average for 60% of the time over the past two months, and closing north of the trendline in eight of the last 10 sessions.

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, eight similar signals have occurred during the past three years. SunPower stock enjoyed positive returns one month after 75% of the signals, and averaged a 9.4% gain. A similar move from the security's current perch would put SPWR well on its way to annual high territory. Year-to-date, SPWR is up 25%, and has doubled off its March lows near $4.

SPWR Chart August 3

Meanwhile, analysts are overwhelmingly cautious about SPWR. All 10 in coverage rate it a tepid "hold," or worse. Plus, the 12-month consensus target price of $7.80 is a giant 20.3% discount to current levels, meaning there is plenty of room for upgrades and additional price-target hikes in the near future.

A short squeeze could also fuel a push higher. Short interest is rising, up 19.5% in the last two reporting periods. The 24.29 million shares sold short represent an eyebrow-raising 30.3% of the stock's available float and would take almost seven days for shorts to buy back their bearish bets.

The options pits have been looking bullish lately, with 10.34 calls bought for every put during the last two weeks at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio stands higher than 82% of readings from the past year, suggesting a healthy appetite for calls of late. 

That said, speculating on SunPower stock's next move with options could be a prudent play. SPWR's Schaeffer's Volatility Index (SVI) of 96% stands higher than just 19% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment.

 

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