SolarCity Blasts Solar Energy ETF To New High

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A vertical spike inSolarCity ( SCTY ) shares ahead of its after-hours first-quarter report blasted the solar energy sector to a new high Monday.

SolarCity jumped 24%, firing upGuggenheim Solar ( TAN ) by 3.76% to 22.36. TAN hit a fresh 52-week peak intraday. It has rocketed an eye-popping 43% year to date vs. 14.83% for the S&P 500. But on a one-year basis, TAN has returned only 8.5% vs. 20.6% for the benchmark.

Market Vectors Solar Energy ( KWT ), which doesn't include the residential solar provider, surged 3.01% to 46.80. Other big gainers held in both portfolios wereMEMC Electronic Materials ( WFR ) up 5.2%,SunPower ( SPWR ) up 4.05% andTrina Solar (TSL) up 3.47%.

Some analysts attributed the move to short covering, in which traders who borrowed shares in hopes of profiting from falling prices have to buy shares to return them and close their positions, thereby driving up demand.

Investors may be betting that SolarCity, with Elon Musk as chairman, will follow in the success of electric-car makerTesla Motors (TSLA), founded and headed by the tech mogul, said Carter Driscoll, a senior clean-technology analyst at Ascendiant Capital Markets in New York City.

"I wouldn't read too much into this rally," said Driscoll. "It's still a tremendously oversupplied market. Demand hasn't picked up much and it's nowhere near what's needed to reduce the glut."

San Mateo, Calif.-based SolarCity reported a loss of 41 cents a share for its first quarter as a publicly traded company, disappointing analysts' forecasts for a loss of 32 cents, according to Thomson Reuters. Revenue grew 21% year over year to $30 million, topping forecasts of $29.1 million.

Shares fell nearly 6% in after-hours trade. The company has recorded losses the past four quarters straight, while sales growth decelerated. The company said it expects to see positive cash flow in the second quarter.

Goldman Sachs downgraded SolarCity stock from buy to neutral in a client note May 1, contending that shares rallied recently on optimism over low-cost financing, positive sentiment around its competitors and various news stories. But it said the near-term catalysts are unlikely to drive the stock higher.

In addition, the June 11 expiration of a lock-up period, when 82% of total shares floated will be eligible for sale, is "typically a negative trading event," Goldman Sachs wrote.

Demand for solar modules from Europe, representing about half of the global market, is expected to drop 43% this year (from 14 gigawatts in 2012 to about 8 GW in 2013) owing to incentive cuts from Germany and Italy, according to Credit Suisse.

U.S. demand is projected to rise 24% (from 3.3 GW in 2012 to 4.1 GW in 2013), Credit Suisse wrote in a client note May 6. Demand outside the U.S. and Europe, however, is expected to more than double to 23 GW this year.

Bullish Chart Patterns

TAN and KWT have both broken out of bullish cup-with-handle chart patterns that formed over the past 2-1/2 months. TAN closed Monday 4% above a 21.81 buy point. KWT ended 6.5% over a 44.05 buy point.

TAN sports a superior IBD Relative Strength and Accumulation Distribution Ratings combination of 86 and A-. That shows it's risen faster than 86% of the market in the past 12 months and institutions buying heavily outweighs selling.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: KWT , SCTY , SPWR , TAN , WFR

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