In order to time your buying and selling properly one should always understand what is going on with the chart. In the case of JDSU, there are several key things to look at in order to not get suckered into buying at a bad time.
#1 Big run but it’s all relative-JDSU has just run 34% in the past month but that move has come off of multi year lows. Prior to that it was down 43% peak to trough just since April. Those who bought JDSU at the April double top are still down 34%!
#2 The volume patterns are questionable. The July heavy volume on the down days couldn’t have been much worse as the 200 day moving average turned into resistance and JDSU sliced through its 50 day MA. We have seen better volume since that time especially as we have broken back above the intermediate term downtrend line but we are heading into earnings so this is to be expected. This 7 day run to the upside could simply be nothing more than short covering ahead of earnings which hit the tape on Tuesday August 14.
#3 Where are the stops placed? -The next obvious level of resistance should be around the $11.59- $11.80 area which are also the 200 and 150 day moving average levels. If shorts are truly covering some of their positions we could see a pop back above those level as shorts get their stops taken out. Runs like these tend to happen ahead of major news events such as earnings and these reference points are typically areas used to place stops. Another obvious spot for shorts to place their stops would be the $11.30 area which is the recent high level from back in July. This level is a good reference point for bearish traders to use as a short term trading reference point. If it holds they stay short. If it doesn’t hold they take their losses and wait for the next setup.
#4 A Big Move But It’s All Relative- Resistance should be getting stronger and stronger the more stretched JDSU gets over the short term. A big run like 34% off the recent lows in a few weeks time does indicate a stretched stock over the short term so resistance should come more into play.
#5 How to Play JDSU -What we look for is how the dust settles. An ideal situation would be to see further short squeezing as the 150 and 200 day moving average levels get taken out to the upside and stops get triggered. These shorts could provide enough fire power to burst back above those levels but it will be how JDSU finishes the day that tell us what the next high probability move will be. If JDSU reverses that big move higher and closes on the lows of the day, it would indicate the bears are still in control and willing to get back in.  A break below the days lows would be a fine entry point on the following day. If JDSU can hold its gains and consolidate sideways for a couple days, then this reaction would tell us the bears have at least temporarily lost control and the bulls now have firmer footing. One could then look to get long on a move higher using the 200 day as a reference point to trade off. We would suggest this level minus say 10 cents for wiggle room.
#5 It’s not the news but the reaction to the news that matters. Knowing what is happening on the chart is critical to amplifying your gains. Trading purely on news or other fundamental data should only be used to get your long/short bias and not as a timing tool. A seemingly good earnings announcement that is sold into is not really good news but what was expected. A miss on earnings that sees an early morning selloff followed by strong bids into the close and a reversal off the lows means the news wasn’t as bad as expected and backed into the cake.
To Learn More About the Better Stock Entries Report Click Here
Thanks,
Better Stock Entries
www.protraderstrategies.com
No responses yet