Change text size

• Email This Article
• Print This Article
• Digg This
• Delicious
• Subscribe

The broader market staged an impressive recovery from its out-the-gate frown lines and price anxieties on Tuesday. However, one spot that sizzled from the get-go was the alternative energy arena, spearheaded by solar stocks. And in a space known for momentum and heavy interest, the session’s hottest issue was Canadian Solar (CSIQ).

Canadian Solar, as the name somewhat suggests, manufactures solar module products used to convert sunlight into electricity. The stock also produced a lot of bullish converts on Tuesday. Many traders were likely trying for a second attempt at a “right side of base” entry. I say “second” as a first buy point in the form of a handle triggered unsuccessfully on May 1. Intraday losses just in excess of 8% that day likely scorched a few bulls.

Somewhat different, Tuesday’s out-the-gate rocket re-crossed the prior handle trigger and kept moving higher on CSIQ’s strongest volume in two months. The net action vaulted shares by nearly 5 points to close at 31.36. The weekly chart view is shown below.

Figure 1: Canadian Solar (CSIQ) Weekly

For growth stock purists, CSIQ might be considered suspect due to its sub par EPS rating of 50 per IBD. Additionally, using the prior buy point of 28.55 or the more recent 29 high plus ten cents for a trigger of 29.10, the gains represent a percentage tack on of roughly 8% to 10%. As the current price is more than 5% above both potential buy points, rushing in to buy Tuesday’s strength has another potential knock against it. A third reason for heeding caution is the price run has the stock retesting its prior highs, which sets up a possible double-top.

On the flipside, the bulls do have a couple of drivers to boast. For one, fundamentals have been known on occasion to lag the real story. And given the overall growth story for the group, CSIQ could be given more benefit than doubt as to its future prospects or potential nearer-term upside surprises. Secondly, shares of CSIQ and its peers have been known to garner the momentum bug. With oil at record highs, there’s another support that might work favorably. Admittedly, if traders compare the two charts they might realize solar stocks, while correlated, aren’t joined at the hip with crude’s daily gyrations.

A third reason for thinking CSIQ could find higher prices in the coming weeks is PS Elliott’s view of the stock. Since triggering an EBOT W4 signal, shares have kept mostly in sync with its TAPP configuration. While this market observer wouldn’t be surprised to find a short pause due to the current double test, CSIQ’s past momentum history via our weekly chart does suggest its ability to beget overbought conditions for more than just a day or two.

Figure 2: Canadian Solar (CSIQ)

For options traders the focus appears in tune with the more bullish evidence presented. In Tuesday’s session, average volume of 2,500 was handily beaten on more than 13,200 contracts. Of that activity, more than 9,700 were calls representing a mostly average put / call ratio of 0.36 were traded. Of that, 6,500 contracts were the slightly in-the-money 30’s and out-of-the money 35 calls in May.

With eight trading days left and implieds just above 100% versus a 10 - 20 SV range of about 65% to 95%, prices are somewhat elevated, but not obscenely so. And with earnings next Tuesday morning, the expectation isn’t for premiums to get any cheaper in front of the report. With four days to trade, the potential impact of theta is a reality and does need to be fully appreciated by strategists entering those hot waters. However, as a non-positioned and neutral-mindset observer, I don’t mind seeing the above view of implieds as having sufficient room to counter premium sellers into the report. 

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum
 
The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.  

• Email This Article
• Print This Article
• Digg This
• Delicious
• Subscribe

Recent Articles by Chris Tyler, Optionetics.com

• May 14, 2008
  Hot Shots: Baidu.com
• May 14, 2008
  Midday Action: May 14
• May 13, 2008
  Option Watch: May 13 - Renesola
• May 13, 2008
  Option Watch: May 13—Renesola
• May 13, 2008
  Midday Action: May 13