Fan Yang
1
All posts from Fan Yang
Fan Yang in Fan Yang,

SolarCity's (SCTY) retreats after the Tesla (TSLA) deal solidifies

SolarCity (Nasdaq:SCTY) has stabilized somewhat in 2016, holding above 16.00. It also appeared to favor Tesla's acquisition announcement. However, as the deal starts to materialize, the market seems to be walking back the positive anticipation.

(Reuters) SolarCity Corp (SCTY.O) agreed to Tesla Motors Inc's (TSLA.O) $2.6 billion offer to buy the solar panel installer, the companies said on Monday, clearing one obstacle in the way of Elon Musk's ambitious plans for a carbon-free energy and transportation company.

Tesla's offer represented about half of SolarCity's value a year ago, a tumble reflecting the solar company's slowing growth, complex financial structure and the increased scrutiny of government incentives for rooftop solar.

For Tesla, acquiring SolarCity offers the promise of greater economies of scale in electrical energy management systems, battery production and marketing, tempered by the near-term challenge of managing a high-risk ramp-up of vehicle production and a merger simultaneously.

Standard & Poors said Monday it put Tesla's credit ratings on CreditWatch with negative implications "to reflect the significant risks related to the sustainability of the company's capital structure following the proposed transaction." (Full article on Reuters)

The chart shows a market that has not juice for SolarCity.

SCTY Daily Chart 8/2

(click to enlarge)

Bearish continuation or consolidation?
- When I talk about a possible price bottom, it is ONLY based on the fact that support held twice around 16.00.
- This means a break from the downtrend pattern - lower highs and lower lows.
- However, we still see lower highs, so we have to say the market is neutral-bearish and possibly in a consolidation stage. 
- If the market falls below 20.40, it would break a month-long consolidation that was mostly in June. 
- This break would put pressure back to the 16.00 level with possibility of extendign lower. 
- If the market can hold above 23, then we can be more confident of the consolidation scenario, which has short-term upside towards the 35.00 handle. 
- Also, if the daily RSI can hold above 40, we would have a sign of a developing bullish momentum. This would add to the outlook towards 35.00.