In the markets—even more so than in most areas of life—there are always two sides to every story.
First, consider the story told by the weekly chart that shows almost all the publically-traded life of Acacia Communications (ACIA):
That’s a mostly bearish story, to be sure—a quadrupling of the stock’s price at the end of its first week of trading ($29) in less than two months, followed by a 50% decline over the next two months, and then another year of selling and consolidation. More on that story a little later.
Now let’s consider the more recent story shown in the daily chart below. After suffering another downswing last October, ACIA entered a trading range, which reached its low point in late January when the stock fell to $34.20, but reversed to the upside the next day. Since then, the stock has gained around 25%—no small feat given that a good part of the rally took place while the broad market was undergoing a correction.
In the process, the stock broke out of the upside of its range to its highest level since November, leaving nothing but air between its current price (around $42.70) and the nearest resistance—the August-September highs around $50 (take another look at the weekly chart).
The 60-minute chart below shows how in late January and early February, Acacia barely budged, instead moving steadfastly sideways while the Nasdaq 100 (NDX) pushed to its correction lows on February 9. Over the past couple of days, the stock has been loitering in the neighborhood of its post-breakout highs.
This push comes, coincidentally, as Acacia prepares to release its Q4 earnings after the close today.
Getting back to the original story, Acacia, which specializes in manufacturing the fiber optic technology that provides the backbone of digital communications, has been fighting slowing growth and has steadily issued negative guidance to the Street. The super-demand for its products expected from China actually contracted last year, although some analysts see that trend stabilizing, if not reversing dramatically.1
Acacia has actually consistently beaten earnings estimates, but it has almost as reliably missed on revenue and offered downward guidance—hence the general lack of bullish follow-through from its quarterly numbers.
However, the company was also featured in a Goldman Sachs report on possible takeover targets in 2018 (perhaps because of its low share price).2 More recently Piper Jaffray cited Acacia as one of the better-positioned optical component suppliers.3
Is “this time” going to be different? The stock’s resistance to selling during the recent correction will certainly serve as a signal to some traders that the Street has already priced in all the negatives; the rally into today’s earnings suggests traders are positioning for better-than-average news from Acacia.
Whether that translates into an ACIA bull market is another matter, but the recent price action—a basing pattern near lows, three consecutive weekly higher highs and higher closes, and an upside breakout—is the first time in a while the stock has bucked its trend.
1 Barron’s. Oclaro Et. Al.: China’s Optical Market Recovers, But Slowly, Says Rosenblatt. 12/12/17.
2 Investopedia. 8 More Stocks That May Surge On 2018 Takeovers: Goldman Sachs. 1/18/18.
3 Seeking Alpha. Piper says II-VI, Acacia in better position among optical stocks. 2/13/18.