Infinera closed at the high

Investment Analysis Clubs Saul’s Investing Discussions
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Folks,

As many here know I follow Infinera very closely. I’ve also recently taken to study its chart: highs, lows, volume, candlesticks and all that. There’s a whole other world of theory on price analysis that I have been studying and won’t get into since our board is not about that, but, I will say what I believe is true. The stock has steadily gathered strength and interest over the past 2 weeks, and it is on the verge of breaking out - as soon as tomorrow - or this morning if you’re waking up and reading this.

For a while it has been a battle between the sellers and buyers after earnings were released. People holding long losses were anxious to sell and would knock the price down as soon as it tried to climb up. Battling against that were the interested buyers looking to grab a great deal. It has been back and forth throughout the day, but usually closing up on most days. The buyers were starting to overpower the sellers, and when that happens they usually try to take a break the next day and wait for more weakness.

Of these buyers, after studying the price action over these past 2 weeks, I believe there to be two types: Those with short positions looking to cover and institutions with a slightly longer view. Both types of buyers look to capitalize on weakness. These buyers are professionals, and they are patient.

Well tonight, as the market was winding down its day, patience started wearing out. Scores of trades, at the days high of 15.80, were exchanging hands. In fact, the closing price ended at the days high, and the same price extended into after hours trading. No lows and no highs - just that same price.

The after hour asking price eventually came up to 15.93. That stopped the buying frenzy, for now. These are professionals and they are patient, after all. There’s always some weakness to be had the next day - if you let it.

Best,
–Kevin

P.S. I’ve beens studying some of the stock favorites discussed on the boards using the price/strength approach taught to me offline by one of our board followers, and I can say that SWKS has also been consolidating recently (buyers starting to overpower the sellers) and is looking to break to the upside soon. SKX has already done so (as of last week). LGIH made a break above its normal trading range just today (after spending about 1-2 weeks there). CASY is also staging a recovery and up trending again. DY is doing the same after a mild outburst to the downside. SEDG just started its up trend. CASY, DY and SEDG are not out of the woods yet, so you know. In fact none of these stocks technically really are according to their moving averages, but, they have been gaining strength off of their recent lows, and that momentum is what causes the moving averages to change.

P.P.S. I know this post does not add anything of value based on fundamentals or market news. What I’m relaying is all based on volume, strength and price action - an aspect I’ve not paid much attention to in the past, but coming to appreciate. At the very least, it is information I suppose. I hope it helps.

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I would suggest the only chart that matters is a long term one, with upward direction from the lower left to the upper right. INFN is struggling with that one.

https://finance.yahoo.com/echarts?s=INFN+Interactive#symbol=…

Also, that the telecommunications sector is a brutal one for investing, that INFN is not a shareholder friendly company, and that the company remains basically a story stock after 8 years of promise. That said, it’s been a reasonably good trading stock, bouncing in the $5-10 range for years, and an ok long-termer, giving many opportunities to purchase at $5. But the long term chart is a long way from showing the creation of long term wealth.

conifer

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Hi Conifer,

I am curious - Why do you say
“INFN is not a shareholder friendly company”

What specific behavior make you say that.

Thanks
Nilvest

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Stock based compensation has been quite high in the past, lowering earnings, which is what we shareholders depend on for stock price gains.

TMFDatabaseBob provided some numbers recently in RB service, if you subscribe…

http://discussion.fool.com/1069/hi-conifer-thanks-for-your-kind-…

In 2014, stock based compensation was 57% of non-GAAP net income, and in 2015 it was 29%.

He followed up with a better summary…

http://discussion.fool.com/1069/hi-again-conifer-i-finally-have-…

but it’s a paid service, so I’ll leave it at that.

I also recall when the CFO Ida Brennan left the company in 2014, after just a few years in that position (a few more total at company), she walked out the door with one of those golden parachute type ‘compensation’ packages. Not what you want to see with the stock price languishing for years.

conifer

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Kevin

I really appreciate the detail with which you follow INFN, and I read everything you write associated with stocks I am interested in - so thank you for that.

I am very intrigued by your dabble into chartism. Of particular note is your willingness to lay out your conclusions ahead of time (so we probably don’t need to worry about staging an intervention!). And also your description of events in terms of real activity rather than just shapes on a graph.

Please continue to update us on your activity: if you are able to derive forward-looking insight that supplements your fundamental analysis, then that would probably motivate me to invest some time.

Cheers

Cham

(and if you prefer to put the follow up on the RB board, that’s fine by me)

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I know it is all relative to when purchaces are made, but I got into INFN in Jan 2014 at average price of $8.30/share. Just over two years and just under 100% gain.

If all my positions languished like this, my returns would look a lot fatter.

Kevin
(a different Kevin)

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Thanks confer, appreciate your detail response.

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it is on the verge of breaking out - as soon as tomorrow - or this morning if you’re waking up and reading the

Hi Kevin,
I read all your wonderful posts about INFN religiously. I love them, and I think that you are amazing in accumulating all that knowledge about the company, and really appreciate you sharing it with us. However, paradoxically, maybe you were lucky, maybe it worked out better for you, that INFN didn’t break out when you called it. If it had, you might have started to feel that that you can pick out a particular day when something will happen, and you might have made some decisions that turned out to be expensive for you, based on that. If INFN had finished up 20 cents instead of down 20 cents, you might have been tempted to talk about “a confirmatory move” or something like that. Also you would have felt considerable pressure to call another move correctly in this or another stock. This way, all the pressure is off. (I certainly agree with you that the stock is moving up by the way, and I hope it will continue to do so.)

There are just two directions a stock can go on a particular day: up or down. If you call one direction randomly, you will probably be right 50% of the time. If you happen to get three right in a row, it’s easy to start to believe that you have a sixth sense about it and get carried away, and that can hurt you significantly. What counts in the long run is how the company is doing. Whether the stock goes up or down “tomorrow” or “this morning” is just noise. (I know that you know that, by the way.)

Best,

Saul

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Hi Saul. First, thank you for your kind words on my posts. I’m glad you find my notes informative. I enjoy doing all the fact-finding and research-digging.

maybe it worked out better for you, that INFN didn’t break out when you called it. If it had, you might have started to feel that that you can pick out a particular day when something will happen

Well, I don’t think there is any chance in me calling an up or down day in particular. Loads of things could happen along the way - and you are right, it is a 50/50 crap shoot on any given day.

However, I do think INFN is showing signs of strength - and while it may not be tomorrow or the next - if the strength continues INFN will be breaking out.

I guess in some respects saying something like that is pretty obvious. If a stock continues showing signs of strength, it will go up - duh. I guess what I’m trying to suggest in the post is what I’ve been seeing in the battle between the sellers and the buyers. The buyers are starting to win, which is really a different thing we’ve seen from the past 2 months. We’re seeing higher highs and higher lows instead of the other way around. INFN may very well continue this back and forth for a while - I don’t know - none of us do. I just feel pretty good about being in the stock right now and if you’re on the sidelines, I believe now is a great time to buy. But please don’t take my words as investment advice. Do your own diligence and use your best judgement.

Hopefully this explains my musings a bit further. And thanks for reading!

Best,
–Kevin

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I will toss in my 2 cents to prolong this OT thread.

http://stockcharts.com/freecharts/gallery.html?infn

I agree, when looking at charts, the most important thing is price and volume, all else is secondary. Is the stock going up in volume or down in volume? Which is to say are the big boys buying or selling. For if they are selling, you can buy all the value you want, but it won’t pay off until they are done.

When I talk about breakouts, I prefer the IBD definitions of a stock breaking out of a “proper” base at or near new highs and on very strong volume (of at least 40% higher than previous day). That constructive work gives you more confidence or probability that it will be successful. From that point of view, all the stocks you mentioned have a long way to go. Swing traders have very different views. For INFN, we see a nice long run up from Oct 2014. Culminating in a top at $25.24 in Aug 2015. Since then we have been forming at deep base. The red volume bars on the day days (weeks) have not been horrible, but on the way down they are almost always bigger than the up days.

The low of the base has been $13.62, which from the high is about $12 down, which is close to a 50% decline. IBD will say that exceeds the “max” of about 35%, meaning the probabilities of success are reduced (based on back-testing).

On the weekly charts you can see the last 3 weeks have all been up, with one week on very nice up volume, one average and last week less than average.

Maybe we are at the bottom, maybe not. IBD called a new FTD recently, but this stock is nowhere near an IBD breakout point.

So what might different chart rules see? I suppose you could say it is bouncing up against the 50dma, which is a point of resistance. That same price is also a recent high in early Feb. So one could argue a rise above those points is a breakout, but I would call it just a nice positive sign. If anything, staying above the 50dma would be a sign to nibble and then wait for the 200dma to be retaken. That could be another nibble zone.

Then as it nears new highs you would look for a proper breakout on high volume and really lay your bets - if that was your reason for investing.

LGIH did take back the 50 recently, but also found resistance at the 200dma. My eyes see a long way to go to form a nice round base ready to blast off. Again, there will be places to nibble along the way, but no “chart certainty”.

Here is a setup of a growth stock with a high IBD “fundie” rating:
http://stockcharts.com/freecharts/gallery.html?vntv
Its buy point would be $53.46, in this case the high of the base (because there is no handle to this cup base).

It did shoot by that point on Friday and I watch closely as my alerts came into my mailbox, but in the end it faded and was not a buy on that day (though if it held the volume was about 2x of previous day, and a tiny bit higher than average.)

Here is another
http://stockcharts.com/freecharts/gallery.html?mxl
On the weekly, you see a nice breakout on huge volume back in Nov 2015. Look at all that nice accumulation on the right side of that base, setting up a nice breakout potential. After that big run up it rested again, forming this current flatter base. So, switching back to the daily chart, we see a very order base formation with very little volume on the downside. It tested the 200dma line and bounced off, a nice sign. It has also retaken the 50dma and held that for the last 5 days or so, another sign of strength. On this right side of the base you can see there have been a new nice up days in volume and no more big down days. Another good sign.

The buy point would be $17.85 (on strong volume). Extremely strong IBD growth ratings…

Checklist…Rating
Composite Rating 99 Pass
EPS Rating …99 Pass
RS Rating …98 Pass
Group RS Rating …A Pass
SMR Rating …B Pass
Acc/Dis Rating …B- Pass

That is what you want to see :wink:

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