Underperforming Fortinet Inc (FTNT) could be in trouble if bullish options traders and analysts finally throw in the towel
Retracement and Fibonacci levels can provide technical traders with a leg up on the competition. Identifying these key areas can help speculators locate inflection points at which stocks pivot from one direction to another. At the same time, a stock that breaches one of these key technical levels could be signaling more downside ahead. This may be the case for
Fortinet Inc (NASDAQ:FTNT).
FTNT has performed poorly on the charts. While the broader market is up sharply in 2016, the cybersecurity stock has surrendered over 6.5% of its value, despite being up 1.8% today at $29.13. Fortinet's chart has been especially ugly since the shares hit an annual high of $37.48 in early October, as they've pulled back 22%.
Moreover, there are signs things could get worse. For the past few months, FTNT has been consolidating atop its 23.6% Fibonacci retracement of its August 2015 high and February 2016 low. However, the stock is currently poised to breach the technical level on a weekly basis, possibly signaling the start of a new leg lower.
If FTNT makes that move, look out below. Optimism across the Street is extremely high toward the shares -- an unwinding of which could exacerbate selling pressure. For example, two-thirds of analysts rate the stock a "buy" or better, without a single "sell" opinion on the books. This leaves the door wide open for downgrades.
Likewise, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly 10 FTNT calls for every put in the past 10 weeks. The resultant call/put volume ratio of 9.88 is the highest reading recorded in the last year, hinting at sky-high expectations. Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.32 ranks in the low 13th annual percentile. A capitulation among frustrated option bulls could result in headwinds.
Lastly, it's worth noting that short interest on Fortinet Inc (NASDAQ:FTNT) has been in free-fall. During the last two reporting periods, for example, short interest plunged 32%. However, the stock failed to capitalize on this short-covering activity -- actually giving up ground, and hinting at underlying weakness in FTNT shares.
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