Stock Quotes in this Article: SCTY

CHARLOTTE, N.C. (Stockpickr) -- When a a stock such as SolarCity (SCTY) surges 23% to $47.44 on a Friday morning, there must be a reason. Let's approach this favorable long trade with a blend of technical and fundamental analysis.

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First off, you do not want to short this stock. I am seeing it as a trade from the long side with an entry of around $42. SCTY has 25% of the float that is short, and while many of these shorts may have covered today, I could see the level increasing back to or even surpassing 25% as the stock sees higher prices, pushed by stubborn hedge fund managers who see "no future" for the stock and refuse to believe that charts that are rising continue to rise.

SCTY's technical chart also points to higher prices. Stocks that increase on volume of greater than 30% the average daily volume typically signal a pivot point and higher prices. The previous resistance of $52.77 becomes the first upper resistance, but I will call it $50 for a cautious estimate. The mighty uptrend behind this stock on a yearly chart will cause the stock to continue back to its previous highs and higher.

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Now for some fundamentals. Solar City, which has more than 1600 employees, designs, finances and installs solar energy systems and also builds out stations to charge electric cars. The company is projecting an increase for 2014 of close to 90% growth in the deployment of its annual installed capacity of photovoltaic projects. This is the kind of growth that brings equity holders large returns. I am assuming that SolarCity plans to continue with its current growth and momentum.

The key is return on equity and return on investment. Management needs to make sure it is adding value to the shareholders through sales and managing debt. If SolarCity keeps its growth up at 90% per year, the stock could triple in the next two years. Stocks grow as companies grow, but managing debt and margins while increasing sales is key to fast-growing stock prices.

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Many of these companies do equity offerings at the top of the stock's move to raise cash to grow the company further. Though this could pull the stock down, it could be a great long-term move for growth. SCTY on a pullback to $42 and finds support there could be a great add to your portfoli.

At the time of publication, author had no positions in stocks mentioned.

Trader Ben Brinneman, featured on MarketWatch, Bloomberg and Reuters, resides in Charlotte, N.C., and is the owner of C Squared Trading. Brinneman started his career trading bonds and was an analyst for a wealth management firm. Brinneman and his team at C Squared Trading have taught hundreds in a one-on-one mentorship setting via Skype or live in Charlotte.


You can follow some of their free trades and tips on Twitter at @csquaredtrading.