Image via WikipediaWe have been negative on optical stocks led by JDS Uniphase (JDSU), Finsar (FNSR) and Ciena (CIEN) for two reasons:
- Irrational exuberance
- Stock prices far ahead of the fundamentals
Now we have the following two fundamental pieces of data that the optical business is nowhere near as good as bulls would like to believe:
‘¢ Ciena (CIEN) reported earnings yesterday. An analysis of the earnings report clearly shows that the optical business is nowhere near the bullish projections.
‘¢ Today Finsar has provided weak projections. For the fourth quarter, Finisar expects a profit of about 31-35 cents a share and revenue of $235-$250 million. Analysts were looking for a profit of 48 cents a share on revenue of $268.6 million, according to Thomson Reuters I/B/E/S. Whisper numbers of the bulls have been much higher.
In the very near term, traders will have a field day trading the volatility. These stocks are likely to open much lower. We will wait for the exhaustion of the down spike and buy for a bounce. Especially promising candidate for quick bounce is Finsar due to its high short interest.
After the bounce, there will be several good trades to be traded as range bound. Especially good candidate for range bound trades is JDS Uniphase due to its high liquidity and tight trading pattern.
When all six screens of the ZYX Change Method are satisfied, we will consider going short on the following stocks:
‘¢ JDS Uniphase (JDSU)
‘¢ Finisar (FNSR)
‘¢ EXFO Electro-Optical (EXFO)
‘¢ Oplink (OPLK)
‘¢ Oclaro (OCLR).
‘¢ NeoPhotonics Corporation (NPTN).
I expect indirectly related highflying stocks such as Juniper (JNPR), Acme Packet, Inc. (APKT), Riverbed Technology Inc. (RVBD) F5 Networks Inc. (FFIV), Corning Inc. (GLW) and Ciena to be under pressure.
The computers at The Arora Report will be monitoring every tick of the above stocks and feeding every tick to our proprietary algorithms. Subscribers to the ZYX SHORT SELL CHANGE ALERT will receive precise entry, stop and exit signals to maximize profits and minimize risks.
