Tellabs (TLAB)

Company

"Tellabs advances telecommunications networks to meet the evolving needs of users. Broadband solutions from Tellabs enable service providers and mission-critical government networks to deliver high-quality voice, video and data services over wireline and wireless networks around the world. Ranked among the BusinessWeek InfoTech 100, Tellabs is part of the NASDAQ-100 Index, NASDAQ Global Select Market and the S&P 500." (company website)

TLAB 3-month stock chart

Buy

Tellabs took a big dive in 2006, bottoming in mid-August. Since then it has been gradually climbing back up.

  • Price momentum (PPO) — picked up rapidly during December
  • Trend (ADX) — very mixed picture, spike in buying pressure (+DI), but below threshhold (20)
  • Money flow (CMF) — improving from strong outflow to modest inflow
  • Relative strength (RSI) — has gone from weak to neutral
  • Volume — big volume sell-off at the beginning of the week, followed by a big volume buy-in

Based on technical analysis, MarketEdge calls TLAB a "buy" in a "weak upward trend."

The big sell-off on Monday was clearly an over-reaction to the company's warning about lower earnings, because recovery was swift, closing higher than the open. Tuesday's session brought TLAB back above the one-month moving average. Thus, any disappointment should be "priced-in" already. In an abundance of caution, however, I have set the activation price of my stop-loss order higher than I normally would have set it.

Sell

loss Bottom line
-3%

My abundance of caution was well justified. After a valiant run at breaking above the 50-day average, TLAB has started back down. It now seems that the reversal has failed. Of course, a big earnings surprise next week could change everything.