JDS Uniphase Lacks Volume

01/31/07 09:29:12 AM

by Arthur Hill

JDS Uniphase surged and consolidated over the last two weeks, but weakness in on-balance volume decreases the chances of follow-through and a breakout.

Security: JDSU
Position: Hold

Developed by Joe Granville, on-balance volume (OBV) works under the assumption that volume leads price. Volume is added when the close is above the previous close and subtracted when the close is below the previous close. A cumulative line forms, and this can be compared to the price plot of a security. Rising OBV shows strong volume on up days and falling OBV shows strong volume on down days.

On the daily chart (Figure 1), JDS Uniphase (JDSU) surged higher in November and then fell back over the last two months. The decline formed a falling wedge and the stock surged on big volume in mid-January. The surge met resistance from the upper trendline and the stock edged above that trendline with a seven-day consolidation. The gains are holding, but one day is not enough to reverse this two-month downtrend. Look for follow-through above the early January high to fully reverse the downtrend and call for a continuation of the November advance.

FIGURE 1: JDSU, DAILY. JDS Uniphase surged higher in November and then fell back over the next two months.

Graphic provided by: Telechart 2007.

Volume remains a problem. The stock surged with one day of expanding volume, and this caused on-balance volume to spike higher. However, there was no follow-through and OBV moved lower over the last four days. OBV remains in a clear downtrend since early December and would need to exceed last week's high to reverse this downtrend. The downtrend in OBV confirms selling pressure and the downtrend in JDSU.

FIGURE 2: JDSU, DAILY. A move below consolidation support at 17 and a break back into negative territory for MACD would be most negative for JDSU.

Graphic provided by: Telechart 2007.

Failure is an option. The stock is stuck in a tight trading range over the last seven days and MACD is trading just above the zero line (Figure 2). While there is still a chance for follow-through and a breakout at 18, traders should also be tuned into a possible breakdown. A move below consolidation support at 17 and a break back into negative territory for MACD would be most negative for JDSU. This would keep the downtrend alive and project further weakness below the mid-January low.

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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