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An earnings short-squeeze play in the communications equipment complex is
Finisar(FNSR - Get Report), which is set to release numbers on Monday after the market close. This company designs, develops, manufactures, and markets optical subsystems and components that are used to interconnect equipment in short-distance local area networks, storage area networks, longer distance metropolitan area networks, fiber-to-the-home networks, cable television networks, and wide area networks. Wall Street analysts, on average, expect Finisar to report revenue of $242.62 million on earnings of 21 cents per share.
This company reported in line estimates last quarter after missing numbers in the prior quarter. In the third quarter profit dropped 52.7% to $8.9 million or 9 cents per share, from $18.8 million or 22 cents per share the year earlier, meeting analyst expectations. Revenue dropped 7.6% to $243 million from $263 million.
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The current short interest as a percentage of the float for Finisar is very high at 15.9%. That means that out of the 89.57 million shares in the tradable float, 14.17 million shares are sold short by the bears. This is a large amount of bears involved in this stock, so if Finisar can report strong results and bullish forward guidance, then this stock could easily see a sizeable short-squeeze post-earnings.
From a technical perspective, FNSR is currently trading below both its 50-day and 200-day moving averages, which is bearish. During the last four months, shares of FNSR have downtrended badly from a high of $23.50 to a recent low of $12.82 a share. During that sharp move lower, this stock has consistently made lower highs and lower lows, which is bearish technical price action. That said, shares of FNSR have bounced off $12.82 to its current price of around $14.50 a share. That bounce has pushed the stock within range of triggering a near-term breakout trade post-earnings.
If you're bullish on FNSR, I would look for long-biased trades if after they report it manages to trigger a break out above its 50-day moving average of $15.97 a share with high-volume. Look for volume on that move that hits near or above its three-month average action of 2.4 million shares. If we get that action, then FNSR could easily trend higher back towards its 200-day
moving average of $18.35 a share or possibly higher of the bulls gain full control of this stock post-earnings.
I would simply avoid FNSR or look for short-biased trades after earnings the stock fails to trigger that near-term breakout, and then moves back below that major support level of $12.82 a share with high-volume. A move below $12.82 and then below its 52-week low of $12.26 would be very bearish for FNSR.