Finisar (FNSR) was punished with a 39% one-day loss last week after announcing disappointing guidance for the current quarter that included the extremely poisonous phrase “…a slowdown in business in China.” The tremendous price drop combined with record trading volume of 40.4M shares displayed all the classic markings of complete abandonment by institutions and large shareholders. So, it is no surprise that the stock continued to sell-off for two days, even on Friday when the NASDAQ rallied a bit.
After three days of post-earnings selling it is time to look at the carnage and review the prospects for a bounce and potential entry points for going long and/or short. I think there is strong potential for a bounce from current levels given oversold technical conditions, a test of support at the 200-day moving average (DMA), extreme selling volume which should quickly reach a (temporary?) point of exhaustion, and the more subtle waning ability of sellers to push the stock off its intraday highs. See the chart below:
Click graph for a larger view…
The 200DMA has well-supported the strong momentum in the rally of FNSR for almost two years, so this retest of support is very important for the stock.
If this support immediately fails, I have to assume that additional downside will quickly follow.
Here is a simplified gameplan that focuses on key technical levels and entry prospects – stops for any position should be set accordingly:
- If FNSR bounces before directly retesting the 200DMA, buy after it has surpassed Friday’s high of $24.28.
- If FNSR retests the 200DMA (around $22.34), very aggressive bottom-feeders can buy with a stop placed below December’s gap around $19.75.
- More cautious bottom-feeders should wait for the stock to conquer the previous day’s high before the retest of the 200DMA.
- Shorts should avoid this stock until a bounce provides better risk/reward. Given the destruction in the stock, I expect any rally to stall by the post-earnings high of $27.19 or shortly thereafter.
- Continued lift over the post-earnings high will be one sign the buyers have taken back control. For confirmation, I would look for some positive catalyst and/or a surge in buying volume. I think guidance for the next fiscal year will be of utmost importance for FNSR’s next phase.
FNSR is a stock that led strong momentum amongst fiber optic stocks. Naturally, the entire group plunged along with FNSR. Stocks like OCLR, EMKR, OPLK, OPXT, JDSU, EXFO, and CIEN all fell sharply last Wednesday, but some maintained their overall momentum. EXFO and CIEN are clinging to uptrends. JDSU stands out as the next biggest test for the sector given a small upside surprise in Q3 guidance was enough to lift it 27% post-earnings. JDSU has now lost all the gains since that day. However, JDSU is currently testing its 50DMA with oversold technical conditions similar to FNSR. I would look for a move above Friday’s high before buying. Otherwise, sellers will likely press the stock toward a fill of February’s post-earnings gap up.
Going forward, the biggest caution with JDSU’s stock is that the tremendous surge in post-earnings buying was followed by a similarly tremendous surge in selling that contributed to the stock stalling out and failing to break to new 5-year highs. See the chart below:
Click graph for a larger view…
The stock chart for F5 Networks (FFIV) provides a great example of the (short-term) trading principles discussed above:
*All charts created using TeleChart:
FNSR, JDSU, and FFIV are some of many high-tech stocks to watch given the dynamic interplay of technical levels that are providing long and short trading opportunities.
Be careful out there!
Full disclosure: no positions