Ciena Stock Breaks Out to 10-Year High

Network provider Ciena Corporation (CIEN) fell on hard times after the internet bubble burst in 2000, descending from a split-adjusted $1,057 into 2009's all-time low at $4.98. The stock continued to underperform through most of this decade's raging bull market but has now awoken from its slumber, rallying to a 10-year high in a show of strength that could generate superior returns for long-suffering shareholders.

Last week's breakout above stubborn resistance in the upper $20s has powered a round of buying signals that could presage a quick advance into the upper $40s, where the 2008 high could slow or stall progress. There's plenty of wiggle room from the most recent closing price into that level, advising sidelined players to watch for low-risk buying opportunities as the uptrend gathers momentum. For now, that translates into a pullback that tests new support centered between $27 and $29. (See also: These 9 Tech Stocks Could Outshine the FAANGs.)

CIEN Long-Term Chart (1997 – 2018) (Log Scale)

The stock mounted $150 after coming public in the $120s in February 1997 and reversed in a downtrend that bottomed out in the upper $70s in April. It surged above $300 in July and turned lower once again, carving a two-month decline that ended in the upper $20s. Bubble buyers took control at the low, generating a parabolic trend advance that mounted quadruple digits in October 2000, seven months after Nasdaq's blow off top. 

The subsequent decline unfolded at the same trajectory as the prior uptrend, cutting through the 1998 low before finding support in the teens in 2002. A mid-decade test broke that level before reversing, generating a shallow uptick into 2007, followed by a brutal sell-off to an all-time low in March 2009. The stock turned higher into the new decade and stalled in the upper $20s, establishing a stubborn resistance level that finally broke last week.

A 2014 test at the 2010 high reversed in a buzzsaw of selling pressure, as did subsequent tests in 2015 and 2017. However, a series of higher lows built a stable platform in the upper teens, limiting downside while accumulation readings rose off deep lows. Repeated testing at resistance finally bore fruit, opening the door to a high-volume breakout that signals the first intermediate uptrend since 2013. (For more, see: The Anatomy of Trading Breakouts.)

CIEN Short-Term Chart (2017 – 2018) (Arithmetic Scale)

Price action between 2011 and 2018 carved a massive ascending triangle with resistance at the 50% retracement of the 2007 into 2009 decline, while the breakout has already reached the .618 retracement level. A follow-through rally would target the .786 retracement at $40, but a quick trip into that level seems unlikely because the rally high has also aligned with the April 2008 swing high, which marks hidden resistance. 

Last week's breakaway gap remains partially unfilled, indicating that a pullback could drop as low at $27.50 and not undermine the strongly bullish momentum pattern. Even so, the stock might ignore short-term selling pressure and grind sideways near the rally high, forcing conservative market players to bite the bullet and enter long positions well above support in the upper $20s.

A multi-year on-balance volume (OBV) accumulation phase ended in 2015, generating a series of lower highs (black trendline) into 2018. The price breakout coincided with OBV's trendline breakout, adding a bullish twist, but it will take tremendous buying power for the indicator to reach the prior high. In turn, this deficit is generating a strongly bearish volume divergence, raising the odds for a reversal and testing at breakout support. (See also: Uncover Market Sentiment With On-Balance Volume.)

The Bottom Line

Perennial laggard Ciena has finally joined its internet bubble peers, carving an impressive breakout that could generate healthy returns. (For additional reading, check out: What Lessons Did the Tech Bubble Crash Give to Investors in the Internet Sector?)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>

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