The Sunnyvale, California-based manufacturer of optical communication components and subsystems, Finisar Corporation (NASDAQ: FNSR) seems to be poised for a price surge as per its latest charts.
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart, the stock was trading within a falling wedge pattern during the past few weeks. This is marked in the daily chart in purple color. A Falling Wedge Pattern is a bullish pattern. Once the stock moves up and breaks out from it, it has the potential to move further up. Currently, the stock has broken out of the falling wedge pattern, which is a bullish sign.
#2 Good support Nearby: The daily chart shows that the stock is near a long-term resistance-turned-support level (marked as a green dotted line). This looks like a good level for the stock to bounce upwards.
This indicates that the bulls are currently in control.
#4 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30.
This indicates bullishness.
#5 MACD above Signal Line: The daily chart shows that the MACD line (blue color) is above the MACD signal line (orange color).
This is a possible bullish setup.
#6 Downtrend Broken in Weekly Chart: As evident from the weekly chart, the stock has currently broken out of a short-term downtrend. The downtrend line is marked in purple color in the weekly chart below. The stock price is also above the 50-week and 200-week SMA. This is also a possible bullish sign.
#7 Bullish RSI moving up: The RSI is above 50 and moving up on the weekly chart, indicating strength.
#8 MACD above Signal Line: In the weekly chart as well, the MACD line (blue color) is above the MACD signal line (orange color). This indicates bullishness.
#9 Bullish Stoch: The %K line of the stochastic is currently above the %D line in the weekly chart, indicating bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase shares of FNSR in two scenarios
- If the stock moves above the resistance level of $22
- If the stock corrects to the gap support level. This translates to a price of around $18.80
TP: Our target prices are $25 and $30 in the next 4-6 months.
SL: To limit risk, place stop loss at $18.00. Note that stop loss is on a closing basis.
Our target potential upside is nearly 32% to 60% in the next 4-6 months.
- Entry at $18.80: For a risk of $0.80, our target rewards are $6.20 and $11.20. This is a 1:8 and 1:14 risk-reward trade.
- Entry at $22: For a risk of $4.00, our target reward (TP#2) is $8.00. This is a 1:2 risk-reward trade.
In other words, this trade offers nearly 2x to 14x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge support with a high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
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