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BOLLINGER BANDS


JDS Uniphase Attempts Another Breakout

09/14/05 01:31:43 PM
by Arthur Hill

After failed breakout attempts in May and July, the third time may prove lucky for JDS Uniphase.

Security:   JDSU
Position:   Accumulate

A glance at the price chart shows that JDS Uniphase (JDSU) declined sharply at the beginning of the year before stabilizing in April. Since late May, a long trading range has evolved as the stock traded between 1.8 and 1.45. There is an old Wall Street adage that advises, "Never short a dull market." With that in mind, JDS certainly looks like a dull stock.

As you can see, the Bollinger Bands have been overlaid to highlight the current contraction of volatility. The Bollinger Band width reached its lowest point of the year in early September, and this usually foreshadows a significant move. But which way? Bollinger Bands do not provide a bullish or bearish bias. For that, we must turn to other indicators and the price chart. See Figure 1.

FIGURE 1: JDS UNIPHASE.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
The stock established resistance around 1.75 at least four times in the last six months. A move above 1.8 would break the current range and should be considered bullish, especially if upside volume remains high. Volume surged on the prior breakout attempts (gray ovals), but the stock was never able to punch through. Volume has again surged in September, and this improves the odds of an upside breakout.

While the stock wallows between 1.45 and 1.8, the moving average convergence/divergence (MACD) hugs the zero line. This is the line of neutral momentum and MACD has crossed it four times since late May. The latest cross is into positive territory, and this gives momentum a slightly bullish bias. As with the price chart, I would like to see MACD move above its July high (resistance) to turn fully bullish on momentum.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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