ReneSola Ltd. rallies on upbeat revenue outlook

In contrast to its upbeat outlook for the fourth quarter, the solar issue expects fiscal 2009 revenue of $650 million to $700 million, falling short of the average analyst forecast for $759 million. ReneSola is due to report its full fourth-quarter results on March 12.

Investors have reacted enthusiastically today, focusing on the hiked revenue forecast rather than the loss warning. At last check, the American depositary shares were up approximately 10% at $2.43. However, the equity's rally has run into a roadblock in the form of SOL's descending 10-day moving average. It's one of just many trendlines looming overhead; the stock has dropped 77.5% during the past year, and is currently re-testing its November 2008 lows near the 2 level.

Despite this poor price action, Wall Street continues to harbor high hopes for SOL. Thomson Reuters reports that the average 12-month price target for the shares is $4.19, implying a premium of nearly 90% from Monday's closing price. Option players harbor similarly lofty ambitions for SOL -- peak call open interest is docked at the 5 strike in the March series, and at the 7.50 strike in the April series.

Of course, it's natural that calls will outnumber puts once a stock has slipped so low on the charts, since there are no out-of-the-money put options in play. Nevertheless, the optimism among analysts and investors is troubling, considering SOL's weak technical performance. Once today's enthusiasm wanes, traders might finally take note of the company's sizable writedowns and sketchy revenue outlook for 2009. If the widespread bullish sentiment toward the stock starts to unwind, SOL will likely be smacked with fresh selling pressure.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.