The indices are hovering around the lows of days as it prepares for the next set of catalysts. The overall technical conditions are healthy but the next move in this market is going to be driven by either the Fed interest rate policy decision on Wednesday or the China tariff decision which could come at any time.
Overall market conditions suggest that there is more upside to come but the risk of a negative reaction to headline news is extremely high. It is likely that there are traders looking to buy a negative reaction to China trade developments but patience is required.
My game plan here is to try to knock out some shorter-term trades in names like Enphase Energy (ENPH) , Williams Cos. (WMB) and Avadel Pharmaceuticals (AVDL) . I have no desire to make money moves until after we have some news. I've got my accounts at all-time highs and, as I wrote this weekend, that is always my primary goal.
My 'Stock of the Week' is Enphase Energy. ENPH designs, develops and sells products to the solar photovoltaic industry. It was the first company to create a commercially successful microinverter that transforms DC to AC on each separate solar panel rather than on a system-wide basis. The company is expanding into monitoring, controls, and batteries. ENPH announced that over 700 solar installation companies in the U.S. use their products.
Last week Goldman Sachs initiated the stock with a 'Buy' rating and an initial target of $31. The analyst stated that ENPH's battery opportunity appears to be underappreciated as the current valuation is justified by just solar alone. The analyst states that an optimistic scenario with greater battery penetration could produce a target of $40 to $45.
ENPH has had huge, quick growth. In the third quarter sales grew 131% and EPS jumped 700% to $0.32 from $0.04. Fourth quarter numbers are up against a very easy comparison but there are concerns that the hypergrowth can't continue at this pace.
Last week the solar sector weakened on news that President Trump's move to block a loophole that allowed some Chinese solar panels to escape tariffs was blocked by the Trade Court. Companies in the U.S. that make panels are at a competitive disadvantage. However, ENPH does not make panels but should benefit from cheap solar panels which will help to increase the number of installations.
Technically, ENPH broke a downtrend line recently and is working on resuming its uptrend that made it top performer into the August high. We are looking for a series of higher highs to attract momentum buyers as another strong earnings report is anticipated. As always we would not chase the open on Monday morning but would be looking for either a low volume pullback or a high volume close to add to our position.