Despite the Sell-Off, Sunpower Stock Remains Bullish

Bullish or Bearish on SPWR Stock
iStock.com/amanalang

Indications Remain in Bullish Alignment for SPWR Stock 

SunPower Corporation (NASDAQ:SPWR) stock suffered a setback on August 2, on the heels of an earnings report that failed to enthuse investors. Sunpower beat on both the top and bottom lines, but the company had lower forward guidance, which was the catalyst that sent SunPower stock spiraling lower by 19.32%.

Such a large drop is always cause for concern, so I am returning to focus on this investment because I feel the need to update and reiterate my bullish view on SPWR stock.

My July 19 report titled “A New Bull Market Lights Up SunPower Stock” outlined a number of technical developments that were suggesting that a bullish view was warranted. I have good news to share: these technical developments remain in bullish alignment and, therefore, a bullish view on SunPower Corp is still warranted.

The sell-off that followed the earnings report found support at an extremely important price point, which is illustrated on the following SunPower stock chart.

spwrwrwr

Chart courtesy of StockCharts.com

SPWR stock found support at the price point that was breached in order to complete the technical price pattern known as a “double bottom.” A double bottom is a reversal pattern that appears at the end of a downtrend. Upon completion, it indicates that a new bullish trend is in development.

This pattern is identified by its coinciding lows that are separated by a peak in between. This pattern is completed when the stock price closes above the peak that separates these coinciding lows. The bullish ramifications suggested by this pattern remain intact as long as the stock price remains above this peak.

It is not a coincidence that the sell-off that followed the earnings report found support at this level. In fact, returning to test a previous level of resistance from above serves to reaffirm the bullish implications suggested by it, as well as establishing it as a new level of price support. This price action is referred to as a “backtest” and is highlighted on the above stock chart.

This alone could be a reason to reiterate my bullish view on SunPower Corporation, but there are other metrics that also continue to support the notion of higher stock prices. These metrics are highlighted on the following SunPower stock chart.

spwrwrwr2

Chart courtesy of StockCharts.com

The SPWR stock chart illustrates the fact that, after the second coinciding low was established, a bullish trend has been in development. This bullish trend contains the quintessential characteristic that defines all bullish trends, which is a series of higher highs and higher lows. This quintessential bullish trend is easily defined using a simple uptrend line.

This simple uptrend line acts like a dividing line and, as long as the stock price remains above that line, it’s safe to assume that a bull market remains in development.

This idea of a bull market is also supported by a golden cross pattern, which was generated in June, when the 50-day moving average crossed above the 200-day moving average. This popular signal is used by the trading community to indicate that a bull market is in development.

The current swoon in the stock price found support right on the 50-day moving average, and the share price is currently trading above that level. As long as the SPWR stock price is trading above both of these moving averages, these moving averages will remain in bullish alignment, implying that a bull market is alive and well, and is still in development.

Let’s not forget that the backdrop has just recently swung into bullish alignment, which also supports the notion that a bull market is once again in development.

The following SunPower stock chart suggests that the backdrop has swung into bullish alignment.

spwrwrwr3

Chart courtesy of StockCharts.com

A bullish backdrop is being suggested by the moving average convergence/divergence (MACD) indicator. MACD is trend-following momentum indicator that is used to determine whether bullish or bearish momentum is influencing the stock price.

Momentum is the force that drives the predominant trend in a stock and, therefore, it is always wise to pay attention to its alignment. The MACD crosses that are highlighted on the stock chart are a testament to this statement because each instance forecasted a very substantial move in the stock price.

In July 2012, a bullish MACD cross was suggesting that bullish momentum was influencing the stock price, which was creating a path of least resistance geared toward higher stock prices. While this indicator was engaged, SPWR stock ran up to the tune of 834.89% before a correction ensued.

In October 2014, a bearish MACD cross was generated, ending the bullish implication implied by the bullish cross that preceded it. The bearish momentum caused the stock price to crater by 80.53% before it was finally able to find its footing.

These two indicators are reason enough to understand that momentum is not something you want to be on the wrong side of.

In June, the bullish implications suggested by the bullish cross were creating a bullish backdrop, which reaffirms the notion that that a bull market in SunPower stock is still development.

Bottom Line on SunPower

The setback experienced on August 2 after the earnings announcement did little to alter my bullish view on this investment. The indications on the SPWR stock chart that were responsible for generating my bullish view remain in bullish alignment, suggesting that the bull market is still in development.