Cellar-Dwellers Take a Leap

 | Nov 08, 2012 | 10:30 AM EST  | Comments
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In Wednesday's post-election rout, some bright spots came from cellar-dweller industries. For example, companies that manufacture fiber optic gear were among some of the session gainers. For the past 18 months, that subsector of tech has been a woeful underperformer.

On bad market days, it's not unusual to see beaten-down stocks and industries rank among the best gainers. That was certainly the case Wednesday, with familiar names like Ciena (CIEN) and JDS Uniphase (JDSU) notching significant price increases.

The moves followed AT&T's (T) announcement that it would build out its network to the tune of $14 billion over the next three years.

Ciena, which counts AT&T among large customers, bolted 13.1% Wednesday to $14.45. The move occurred in more than double average volume.

This is a stock that has been absent from my scans for most of the past 12 years since it peaked in October 2000. Ciena was a venture-capital-funded darling of the late-1990s tech boom, but has logged erratic earnings performance in recent years.

Clearly, investors and traders see potential for the company as a result of the AT&T news. I'm out of the business of trading individual stocks on a medium-term basis, but there are some red flags on this chart. The 50-day line is still below the 200-day, so traders may want to watch for a bullish moving-average crossover.

The stock is also trading 21% below the high of its 52-week high. In August, it ran as high as $18.39, but it turned south and gapped 20% lower on Aug. 30, following Ciena's third-quarter report.

The company is expected to report its fourth quarter late this month, with analysts eyeing a loss of $0.06 per share on revenue of $468.73 million. That's the kind of earnings performance (or lack thereof) that has kept this stock off my screens.

JDS Uniphase, meanwhile, leapt nearly 5% Wednesday to $11.15. Volume was more than twice normal levels.

The S&P 500 component is mired below its 52-week high, its February peak of $15.17. JDS Uniphase is trading below its 50-day and 200-day averages, something that generally does not bode well for traders attempting to enter a stock.  

This company, too, has an erratic earnings history, although it's remained profitable every year since 2007. Year-over-year earnings have fallen in each of the past five quarters.

In the third quarter, which the company reported Oct. 30, earnings came in $0.033 above views.

This is another example of a stock that I would not enter immediately. Instead, I would wait for it to cross above the 50- and 200-day lines.

Finisar (FNSR) is another beaten-down fiber optics gear maker. This is one I wrote about here in 2010, as it was rebounding off its 10-week average, eventually rallying to a high of $46.09 in February of last year.

This is a recent example of how easy it is for a stock to fall from growth-stock leadership. On Wednesday, Finisar advanced 1.1%, closing at $12.32.

Many traders might try to grab shares, as the stock is trending higher after an October low of $11.36. But the stock is about 11% below its 50-day line and 22% below its 200-day. This is not a signal of technical strength, so that I would continue to avoid this stock.

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