A Turnaround in Energy Conversion Devices Inc (ENER)?

12/18/2008 11:56 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

A look to the leading stocks for the day shows an interesting situation with Energy Conversion Devices Inc (ENER). Shares of this alternative energy name are up 20%, yet a check of the headlines reveals little in the way of stock-moving news. So while the catalyst for the rally seems hidden, here's what I do know…

A check of the sentiment profile shows a couple signs of skepticism that caught my eye.

The first comes from the Street. According to Zacks, only five of 14 analysts (36%) rank the stock with a "buy" rating.

The other comes from short interest. Data collected by our Quantified Analysis group reveals that 27% of the stock's float is currently sold short.

In other words, the majority of analysts have given up on the stock, while over a quarter of the float is tied up in positions that may have to be bought back. While this may seem like rampant skepticism, it does have to be considered in the context of the chart below.

Chart Courtesy of Thomson Financial

A point made many times in this space is that the contrarian implications of sentiment are strongest when they run counter to the price action. In this case, we have skepticism amid a downtrend, so this isn't the classic contrarian buy signal scenario. However, we do have some signs of life from the stock, and that is the first step in a turnaround. If we do see a change in trend, that skepticism would then come back into play as it represents potential sideline money. The test for the stock is whether it can break through the congestion it currently is facing. Watch for a push above 30 to provide that signal.

Now, in the interest of full disclosure and self flogging, I must admit that I did offer some upbeat comments on this stock back in July. In September, the shares broke support and quickly plunged lower, proving me wrong.

By Nick Perry of Schaeffer’s Trading Floor Blog

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