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Signal Says Energy Stock Could Have a Big Summer

Patrick Martin

Although down today, Enphase Energy Inc (NASDAQ:ENPH) is only two days removed from four-and-a-half year high of $16.29. As the energy stock heads toward its fifth straight monthly win, there's reason to believe the good times are far from over, if this historical indicator is to be trusted.

Specifically, the stock's Schaeffer's Volatility Index (SVI) of 63% ranks in the 13th percentile of its annual range. This indicates short-term options are cheap, from a volatility perspective. Per data from Schaeffer's Senior Quantitative Analyst Rocky White, the one other time since 2008 that ENPH was trading within 2% of a new 52-week high while its SVI was ranked in the bottom 20th percentile of its annual range, the equity averaged a one-month gain of 18%.

From its current perch at $15.16, a similar jump would put the equity a chip-shot from its September 2014 all-time high of $17.94. In 2019 alone Enphase stock has more than tripled, with this week's pullback finding support at its 20-day moving average. Put a different way, the shares have somehow turned in only three weekly losses in 2019.

Daily Stock Chart ENPH


A short squeeze could keep the wind at ENPH's back. Short interest dropped by 11% in the most recent reporting period, yet the 21.93 million shares sold short still accounts for a whopping 27.8% of the stock's total available float. At the security's average pace of trading, it would take shorts nearly nine days to buy back their bearish bets. 

In the options pits, calls are preferred. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 6,239 ENPH calls were bought to open in the past two weeks, compared to just 721 puts.

Echoing this, Enphase Energy's Schaeffer's put/call open interest ratio (SOIR) of 0.22 registers in the 2nd percentile of its annual range. In other words, short-term speculators are more call-heavy than usual toward ENPH. While some of this activity is likely at the hands of traditional options bulls, given the short interest tied up in the stock, it's also possible shorts have been initiating an options hedge against any additional upside risk.