This morning, Tellabs forecast third-quarter sales of $452 million to $460 million because of lower-than-expected revenue from wireless service providers. The company warned that it expects adjusted gross profit margins to range from 31% to 32%, reflecting fewer Tellabs 5500 digital cross-connects sold and, as a result, net earnings are expected to range between breakeven to a penny per share. Pro forma earnings are expected to come in at 2 cents to 3 cents per share. The consensus estimate on the Street stands at 6 cents per share on revenue of $501 million.

The equity has steadily declined from its July 23 peak of $13.67 under pressure from its 10-day and 20-day moving averages. The stock had stuck close to former support at the 9.50 level, but the shares are poised to breach that level today. The stock is currently down more than 5% and is approaching the 9 level following this morning's earnings warning.

Ahead of this morning's warning, investors were extremely optimistic. Schaeffer's put/call open interest ratio for TLAB is lower than three-quarters of those taken during the past 52 weeks. Meanwhile, short interest plunged 13% to 13 million shares, resulting in a paltry short-interest ratio of 1.7. As the last of the bulls scramble for the exits, selling pressure should increase on the shares.