The only thing the market has accomplished in the last two days is to slightly widen its trading range. We are now back near the bottom of the range that has been in place since July 14 and don't look much closer to a resolution in either direction. Technical conditions still tend to favor an upside breakout, but the longer we continue to trade in such a tight range, the more likely we are to have a high level of choppiness rather than a clear breakout that results in sustained momentum.
It is slow going out there, so that means we have to dig a bit deeper for new ideas. The best ideas are usually a product of themes, and one theme that seems to be popping up quite a bit recently is the building of optical systems to handle more and faster traffic. One of the biggest winners this year in that group has been Acacia Communications (ACIA) , but there is another lower-priced name on my radar now.
Oclaro (OCLR) is growing what is known as the 100G business at a tremendous pace. It is expected that this business will grow 70% in the next fiscal year after a 92% increase in the June 2016 fiscal year. Revenue and earnings estimates are rising.
It is expected that for the fiscal year ending in June 2017, earnings will rise 59% to 27 cents per share and then another 41% to 38 cents in the following fiscal year. The potential for upside surprises is also quite high.
This is the sort of stock I want to average into as it digests recent gains. The fundamentals should help provide support and will lead to dip buying. The stock may need some consolidation, but the story is good enough for me to establish a position at this time.