Short Trader: Bears Take Up Residence in FiberTower

Today's short idea, FiberTower(FTWR Quote), is a wireless carrier that acquired First Avenue Networks last May. Shares spiked after that announcement, but nothing has been positive for the stock price since then. Its downtrend during the summer and fall 2006 has led to a congestive base near lows through the first part of 2007.

FiberTower succumbed to strong distribution pressure throughout the second half of 2006. The share price started around the $12 level in early May, then soared to an intraday high of $15.90 in mid-May after the merger agreement was announced. The share price quickly settled back down to levels just below $12, but then ended the year with more than a 50% haircut. When the year turned over to 2007, the price was under $6 a share.

The stock's volatility was marked by two capitulation phases in 2006. The first occurred in June when the share price fell from its peaks above $11 to $7 in early July, and the second took place in October when the price fell from $9 to $6.50. Once FiberTower's stock price broke below $6, the August 2006 low at $6 acted as a new resistance level throughout December and the first quarter of 2007.

Given the inability of the stock price to move above $6 since December and the company's latest earnings report, which doesn't offer much in terms of growth, shares of FiberTower appear to be headed lower. A break of the technical congestion support level at $4.60 looks likely.

Margin rules typically dictate that stocks trading under $5 are not available for shorting. So check with your broker on shares of FiberTower before entering orders. Some brokers may not carry these shares for shorting, or they may have restrictions placed on this stock with regard to open short interest policies that are broker-specific.

If your broker has shares available, the ideal short setup for FiberTower would be an entry at $5.60. The stop would be placed at $6.20, offering 60 cents in risk.

FiberTower (FTWR) -- Daily