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Sunpower – price action & bullish divergence warrant a closer look (20 Dec 18)

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Dear readers,

Some of you have sent me emails to express concerns whether I am still maintaining my blog, as I have not posted an article in the past couple of months. Thanks for the concern and emails. It warms my heart that there are readers who are actively following my blog. Something happened to my family which caused me unable to post articles on a timely basis. (My clients are still receiving some periodic short writeups on the market and specific companies during this period) Anyway, I am glad to be back to work this week!

This week, Sunpower’s (“SP”) price action and chart caught my attention.

 

Why did it catch my attention?

a) Bullish price divergence against the broad market

Recently, SP has been exhibiting bullish price divergence against the broad market. As STI and FSTS small cap index weaken to a two-week low, SP has closed near a two-week high of around $0.340;

b) Dec sell-off did not make a new low and bounce back quickly

Furthermore, it is quite assuring that during the sell-off in Dec, SP only touched a low of $0.275 on 10 & 11 Dec 2018 and bounced back rather quickly. It did not break the prior low of $0.270 established on 1st Nov;

c) SP seems to have breached a short-term downtrend

With reference to Chart 1 below, SP seems to have breached the short-term downtrend line. There is some volume accompanying the breach but time is required to ascertain whether the bullish breach is sustainable;

d) All the chart indicators seem to exhibit bullish divergences

If I compare the lows set on 1 Nov 2018 and 11 Dec 2018, all the chart indicators (such as MFI, MACD, RSI, OBV) which I use, seem to be exhibiting bullish divergences. This is pretty rare and corroborates the bullish break;

Near term supports: $0.320 / 0.300 / 0.280 / 0.270

Near term resistances: $0.340 / 0.365 / 0.380

Chart 1: SP breaches its short-term downtrend line

Sunpower chart 20 Dec 18

Source: InvestingNote 20 Dec 18
 

Some other notes (non-technical chart) on SP include

a) SP is hosting a Special General Meeting on 28 Dec 2018, Fri 10am for the proposed adoption of the share buyback mandate. This is interesting, as companies usually will wait to propose this in their AGM (which is only 4-5 months away). Thus, my personal guess is that company may do share buybacks in the next few months;

b) 4QFY18F is usually SP’s peak quarter in terms of results (pls refer to my earlier article HERE on SP for more info);

c) SP may step up its investor relation activities in January to engage the investment community, as funds and analysts return to work from holidays.

 

Risks

There are several risks, some of which I have highlighted in my earlier write-up HERE. To reiterate, some risks include unfavourable outcome from the shareholders’ (not the company) legal suit against American 2030; 4QFY18F missing analysts’ estimates by a large degree, illiquidity risk. Furthermore, the above chart reading is tricky, as SP is less liquid. Readers should exercise your due diligence.

 

Readers who wish to be notified of my write-ups and / or informative emails, can consider signing up at http://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider leaving their contacts here http://ernest15percent.com/index.php/about-me/

P.S: I have already informed my clients when SP is trading at $0.325 this morning. I am vested in SP.

 

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