FNSR Stock: This Tech Stock Has Legs
Finisar Corporation (NASDAQ:FNSR) is tech company that offers optical subsystems and components for networking and communications devices. They essentially power the global communications network. The demand for data across communications networks is continually growing at an exponential rate. Platforms are continually moving toward mobile, and the data these devices consume is growing as the content is becoming richer and more interactive.
This tech stock sports a market cap of $2.3 billion and the company’s nearest competitor, Broadcom Ltd (NASDAQ:AVGO), sports a market cap of $69.0 billion. With a small-market cap, FNSR stock has room to appreciate. If we delve further into the numbers, we also see that Finisar has $1.26 billion in revenues. Fundamental analysts will argue that there is value in this tech stock using the price-to-sales ratio as their key argument.
As is always the case when I screen investments, fundamentals are important, but the price chart is where I truly gain an edge. And the Finisar stock chart is a standout.
Chart courtesy of StockCharts.com
Soon after Finisar stock peaked in 2011, this tech stock started forming a large descending triangle. These patterns are made using two trend lines; support is defined with a horizontal line, and resistance is defined with a negative sloping trend line. The defining aspect of these patterns is the price action. Every time the share price attempts to appreciate, the rally ends at a lower high as sellers are more willing to exit positions in Finisar stock at a lower price.
Larger patterns are more significant, and this one was 5.5 years in the making. Triangles are consolidation patterns where momentum is stored within the pattern until an eventual breakout. The longer and larger the pattern is, the equally larger and lengthier the reaction will be. The current run after the breakout may turn out to only be the start of an epic run for FNSR stock.
The following chart illustrates the short-term bullish implications for this tech stock.
Chart courtesy of StockCharts.com
In March, FNSR stock generated a golden gross, which is a bullish technical signal that is produced when a faster 50-day moving average (highlighted in blue) crosses above a slower 200-day moving average (highlighted in red). These signals are used to confirm the current bullish trend. As a rule of thumb, it is never wise to trade against such a signal.
After breaking out of the triangle, Finisar stock has been confined in an ascending channel. There are two parallel lines that define the upper and lower bounds of this trend. What sets an ascending channel apart from other channels is that both lines have a positive slope. As a result, as time progresses, the trading range trends higher. The share price will oscillate between these two lines for as long as the trend permits. If the share price were to break below support, outlined by the channel, it would warrant an exit from the trade.
The formation highlighted in pink is a bullish setup pattern, known to traders as a cup and handle formation. Traders use these setup patterns to identify continuation patterns that reaffirm the predominant trend. This pattern executed when FNSR stock price closed above the horizontal resistance level. What makes this pattern special is that it is embedded within the channel. Patterns that are embedded within one another are not that uncommon, but when they do present themselves, they reaffirm the current trend.
The Bottom Line on Finisar Stock
FNSR stock broke out of a 5.5-year consolidation pattern in March 2016 and marks only the beginning of many possible bullish implications. The short-term price patterns support the bullish premise. I am bullish on this tech stock and I will only change my premise when the charts give me a reason to.
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