Oclaro, Inc.'s (OCLR) Post-Earnings Pullback Not Cause for Concern

Despite falling after reporting earnings, Oclaro, Inc. (NASDAQ:OCLR) is trading atop several layers of technical support

Feb 1, 2017 at 11:42 AM
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Fiber optics specialist Oclaro, Inc. (NASDAQ:OCLR) plunged nearly 11% out of the gate, but was last seen trading down 2% at $9.61. Considering the stock soared earlier this month after a positive reaction to its preliminary earnings report, it appears optimism may have already been priced in ahead of last night's solid fiscal second-quarter results and current-quarter forecast. Nevertheless, analysts were quick to chime in, with Craig-Hallum, Jefferies, and Piper Jaffray all boosting their price targets to levels not seen since since March 2011. With the equity still trading atop several layers of technical support -- and plenty of skeptical sentiment left to unwind -- OCLR could be in a prime position to brush off today's post-earnings pullback, and resume its long-term uptrend.

In fact, OCLR is still boasting a 162% year-over-year lead, and notched a five-year high of $10.35 one week ago today. Additionally, today's early decline was quickly contained in the $8.75-$8.95 region, which roughly coincides with the stock's 20-week moving average and 23.6% Fibonacci retracement of its June-to-January rally. Below that is the $8.10-$8.50 region, home to a 38.2% retracement of the same surge and the security's rising 120-day moving average -- both of which helped contain OCLR's mid-January pullback.

oclr weekly since february 2016

Meanwhile, in the options pits, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open puts at a near-annual-high clip in recent weeks. Specifically, OCLR's 10-day put/call volume ratio of 0.43 ranks just 4 percentage points from a 52-week peak. Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.59 rests above 96% of all comparable readings taken in the past year, meaning short-term speculators have rarely been as put-skewed toward OCLR as they are now.

In fact, put volume on OCLR hit a 12-month peak of 17,916 contracts traded in a single session on Jan. 19 -- and put open interest across all series is currently docked in the 96th annual percentile, with 25,260 contracts outstanding. While it's likely some of this activity came at the hands of shareholders protecting profits against a pullback, an unwinding of the hedges related to these bets could help buoy OCLR in the near term.

Elsewhere on Wall Street, although the stock is short-sale restricted today, short interest has been on the rise since bottoming at a 19-month low in September -- up 34.7% in the last two reporting periods alone. With 17.85 million shares sold short, these bearish bets account for a lofty 11.4% of OCLR's available float. Not only does the stock's ability to rally in the face of such intense selling pressure speak volumes to its underlying strength, but a capitulation from some of the weaker bearish hands could create tailwinds for shares of Oclaro, Inc. (NASDAQ:OCLR).

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