Tuesday, January 24, 2012

Undifferentiated Trading in Solar Stocks

This is a chart of Evergreen Solar common and Energy Conversion common over the past month.

Notice the very high correlation. Basically, every highly shorted stock spiked sharply last week (which of course meant the solar stocks did too).

It's funny because there is very little uncertainty about the value of ESLR stock: the company is in bankruptcy, the secured debt is taking a big haircut, the unsecured debt is getting virtually nothing (trading at less than a cent). Clearly, there is no good news or reason to buy the ESLR shares.

That allows us to test the hypothesis that there was no information content in the rally; just undifferentiated buying of highly shorted stocks.

What we see in the ESLR/ENER chart is consistent with that hypothesis.

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