Trading Blueprint for Ciena (CIEN) Stock

Adaptive network solutions provider Ciena Corporation (NASDAQ: CIEN) has transformed itself into a major player on the forefront of 5G infrastructure buildout, migration and integration services. Ciena is harvesting a portfolio mix of synergistic products accelerating on all fronts at scale. It’s Q3 2019 earnings conference call lifting guidance blindsided many complacent short sellers. Non-telco revenue grew 25-percent YoY, Packet Networking segment 23-percent YoY and optical grew 17-percent in fiscal 2019. The white-hot optical fiber segment saw continued acceleration on upbeat results from Lumentum (NASDAQ: LITE) and Fabrinet (NYSE: FN) propelling CIEN shares neared multi-year highs in correlation with the S&P 500 (NYSEARCA: SPY) on Feb. 20, 2020. Enter the coronavirus epidemic, triggering fears of global economic turmoil rocking the SPY in its fastest correction in history dropping (-12 percent) in and taking CIEN shares lower by (-16 percent) in six-trading days.   

Earnings Catalyst

CIEN reports Q4 2019 earnings pre-market on Thursday, March 5, 2020, followed by the 8:30am EST conference call. Consensus analyst estimates are for 0.38-EPS profit on revenues of $818.50 million. While Q4 results are important, investors are anticipating guidance cuts in light of the coronavirus epidemic’s impact global supply chain and demand shock. The Q3 2019 conference call resonated around the solid visibility for fiscal 2020. Management will be challenged to further galvanize the visibility theme or embellish the uncertainty route that most companies have taken in light of the extreme market volatility. The question is whether CIEN can fend-off the systemic threat and make a case for the 2^nd half recovery or better.

Rifle Chart Technical Analysis Trajectories: Longer-Term

We use the rifle charts on wider time frames to lay out the playing field suitable for swing traders and investors. The monthly rifle chart shows a potential symmetrical triangle forming with lower highs and higher lows as the apex nears. The monthly 5-period moving average (MA) and 15-period MA have overlapped at 39.95. The monthly stochastic has crossed down but appears to be stalling at the 60-band. The weekly rifle chart was set for a pup breakout before the coronavirus panic rug pulled shares straight through the 5 and 15-period MAs by peaking out the weekly stochastic and crossing them down. CIEN was able to snap back off the 37.82 Fibonacci (fib) level quickly triggering a daily market structure low (MSL) above 39.73. The daily stochastic is ready to coil up through the oversold 20-band if CIEN can hold above the daily 5-pd MA. The action is stalled going into the earnings reaction.

Sympathy Stocks:

CIEN has positive correlation with stocks in the optical fiber segment and then networkers. The primary “go to” sympathy movers are Lumentum (NASDAQ: LITE) and Fabrinet (NYSE: FN) as they have literally identical charts with each other and CIEN. If CIEN gets a large gap up or down and follow through surpassing 10-percent, then watch for momentum to spill over to the networkers Cisco Systems (NASDAQ: CSCO) and Juniper Networks (NASDAQ: JNPR).

Trading Game Plan for Earnings Gap:

This information is accommodative to intraday and short-term traders looking to play the earnings gap.   With a post-market earnings release on Thursday, March 5, 2020, immediately followed by the conference call at 8:30am EST. Only the nimblest traders should even consider hitting the immediate reaction on the post-market release. If CIEN gaps down over 10-percent on the initial reaction, a reversion bounce could set-up heading into the 8:30 am EST conference call. CIEN has had a history of large gaps and sustained day-and-half long short squeezes, just check out the reaction on Q3 2019 earnings. Stocks can have muscle memory, so caution is warranted overstaying shorts on large gaps up. Reversion trades are mean to exit positions with or without profits.

Nimble pre-market traders can scalp the price gap reversion levels, but most should wait for the morning session off the opening bell. Traders can expect scalps ranging from 0.20 to 0.50 in the first 20-minutes as ranges and spreads eventually get tighter. CIEN tends to trade in a tight range but can expand ranges quickly when pressed on high band stochastic for extended periods of time, which is why the short squeezes can last so long intraday. Reversion scalps off the key price inflections levels can be played for the second gap reaction then shift focus to the third reaction trend move.

The gap price reversion levels for the upside price gaps are: 42.30 fib/sticky 2.50s zone, 43.80 fib, 44.69 fib/sticky 5s zone and 45.70 fib/sticky 5s zone.

Downside gap reversion price levels are: 37.82 fib, 36.81 fib, 35.44 fib/sticky 2.50s zone, 34.41 fib/sticky 5s zone. The positive correlation is very strong between CIEN, LITE and FN. Seasoned traders can trade periods of negative divergence in addition to laggard sympathy on the positive correlation on the CIEN gap.