Beware The Canadian Solar Surge

The shares of Canadian Solar (CSIQ) are higher today, after the firm said it secured $50 million in long-term financing for a solar power project in Argentina. Zooming out on the charts, however, CSIQ stock is flashing what’s been a sell signal, historically, suggesting it could be time for bulls to hit the exits.

Canadian Solar shares moved higher in November, helped by a well-received earnings report mid-month. The rally culminated in an annual high just south of $18 on Nov. 28. In fact, this level has acted as a roadblock for CSIQ since early 2016.

What’s more, the shares are now within one standard deviation of their 40-month moving average, after a lengthy stretch below this trendline. In the past 15 years, there have been four signals of this kind, after which CSIQ went on to average a one-month loss of 15.79%, per data from Schaeffer’s Senior Quantitative Analyst Rocky White. Further, the shares were in the red three of four times a month after run-ups to the 40-month trendline. From the equity’s current perch around $16.53, a similar drop would put the solar stock around $13.92 in January.

Should CSIQ once again stall beneath the $18 level, or retreat after crossing the 40-month threshold, an unwinding of optimism could translate into an added headwind for the shares. Currently, half of the analysts following the stock maintain “strong buy” opinions, and options traders have been much more bullish than usual.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than 17 CSIQ calls for every put in the past two weeks. The ratio registers in the 86th percentile of its annual range, pointing to a bigger-than-usual appetite for bullish bets of late.

Traders looking to speculate on CSIQ’s short-term trajectory should consider options. The stock’s Schaeffer’s Volatility Index (SVI) of 56% is in the bottom 18% of its annual range, suggesting near-term options are pricing in relatively low volatility expectations.