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Ciena Cuts First-Quarter Sales Outlook, Shares Follow Suit

CIEN battles to hold support atop its 20-day moving average

by 2/21/2012 3:00:37 PM
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Ciena Corporation (CHK - 15.91) is bucking the broad-market trend higher, with the stock down more than 6% in today's session. Wall Street is having a decidedly negative reaction to CIEN's early morning release of its preliminary first-quarter revenue results. Citing delays of "top-line recognition" from a number of new customers, the network communications concern cut its sales outlook for the previous quarter to $415 million, from its previously forecast range of $435 million to $455 million, and well below its year-ago revenue of $433.3 million. CIEN is due to report its full first-quarter results on Wednesday, March 7.

Today's plunge takes a bite out of CIEN's impressive 40.5% year-to-date gain. In fact, over the past 40 trading sessions, the stock has outperformed the broader S&P 500 Index (SPX) by more than 37 percentage points, on a relative-strength basis. As a result of today's plunge, CIEN is testing its 20-day moving average -- a trendline that has provided solid support in recent months, and has not been breached on a daily closing basis since Dec. 21.

Price Chart of CIEN With 20-Day Moving Average

Sentiment from the options arena has been rather bullish toward the stock, perhaps because of the security's strong showing on the charts in 2012. To begin with, CIEN's Schaeffer's put/call open interest ratio (SOIR) of 1.06 ranks in the 35th percentile of its annual range -- indicating that short-term speculators are more call-heavy than usual toward the equity.

Furthermore, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than six calls for every put during the past 10 sessions. This ratio ranks just seven percentage points from a 52-week peak, suggesting that bullish bets have been picked up over bearish at a near annual-high clip in recent weeks.

However, not everyone is as seemingly smitten with CIEN. Although short sellers reduced their exposure by 12.4% in the latest reporting period, short interest still accounts for a significant 28.7% of the stock's available float. The apparent bullish bias coming from the options pits may simply be this group of pessimistic players hedging their bets, given CIEN's technical prowess so far this year. Should the stock lose its footing atop its 20-day moving average and continue to add to its 38.6% 52-week deficit, additional bears may be encouraged to climb on board.


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