PG&E: Short Interest, Volatility, and Chart Indicators

Bankrupt utility PG&E Corporation (PCG) stock started December off on a positive note, gaining more than 5% on December 2. The stock has soared more than 110% since the all-time low of $3.55 it hit in late October despite mounting troubles.

PCG’s short interest

PG&E’s short interest had decreased by 1% as of November 15. Its total shorted shares on October 31 were 51.2 million, and they’d decreased to 50.5 million by November 15. Short interest represents investor anxiety, and a fall in it might suggest that fewer investors expect a stock to fall from its current levels. However, PG&E’s latest fall in short interest looks insignificant. Its short interest has largely trended upward in the last few months.

PG&E stock has been notably weak this year. It has lost 70% so far. Peers Edison International (EIX) and Sempra Energy (SRE) have risen 25% and 37%, respectively, in the same period. Broader utilities have gained more than 20% YTD.

PG&E’s bankruptcy

PG&E Corporation filed for bankruptcy in January this year. Its 2017 and 2018 wildfire-related liabilities reached $30 billion. It has a deadline of June 30, 2020, to emerge from bankruptcy.

The utility has been implementing preventive power shutdowns this year amid dry and windy weather. It’s taken harsh criticism from customers amid these widespread blackouts. However, the measures were proven to be quite useful and avoided significant damage. To learn more, read PG&E Gets Hate, but California Blackouts Did Their Job.

Implied volatility

PG&E stock was the most volatile stock among utilities this year. Its implied volatility was close to 115% yesterday, lower than its 15-day average of 125%. Broader utility stocks’ (XLU) average volatility was around 12% recently. Implied volatility measures investor anxiety. A rise in implied volatility is generally associated with a fall in stock prices. PG&E’s implied volatility peaked at close to 250% in late October.

PG&E stock is currently trading close to its 50-day simple moving average. The stock broke below this key support level in July and has been weak since then. The stock could gain momentum if it breaks above this level of $7.9. PCG is trading almost 50% below its 200-day moving average level, which might concern investors. This level of close to $15.5 might act as a crucial point of resistance for the stock.

Will PG&E stock continue to rally?

The recent strength in PCG has pushed the stock toward the overbought zone. Its 14-day RSI (relative strength index) was around 65 on December 2. An RSI of above 70 or below 30 indicates that a stock is trading in the overbought or oversold zone, respectively. At the extremes, RSI suggests a probable reversal in a stock’s direction.

Wall Street analysts look cautious on PCG stock at the moment. Among the ten analysts covering the stock, nine recommend “holds,” while one recommends a “strong sell.” UBS cut its target price from $10 to $9 last week.

Troubled utility PG&E tried to lower its large liability burden by dodging California’s inverse condemnation law last week. Inverse condemnation is legislation that holds utilities responsible for damages even if they’ve followed all the necessary safety norms. A bankruptcy court ordered the utility be held liable for the wildfire damages it had caused. The court’s ruling was a relief for the victims. To learn more, read PG&E Gets No Respite from Inverse Condemnation.