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CHART ANALYSIS


JDSU: Close, But No Cigar Just Yet

05/29/03 08:31:44 AM
by Arthur Hill

Here is JDSU showing subtle signs of accumulation, but wait for a breakout before popping the champagne.


Security:   JDSU
Position:   N/A

JDS Uniphase (JDSU) is part of the lowly telecom equipment group. In particular, JDSU designs and manufactures fiber optic related products, which were perhaps the hardest hit during the telecom downturn. The stock has been languishing below 5 since July '02, but shows signs of a base and subtle accumulation. A base signals that the decline has ended, but a high volume breakout is required for a sustainable bull move to begin.

JDSU led the Nasdaq higher in October and November with a strong advance to 3.6. After a (Fibonacci) 62% retracement of the Oct./Nov. move, the stock again met resistance around 3.6 and traced out a series of higher lows over the next few months. The resulting pattern is an ascending triangle, which is a bullish continuation pattern, and a move above 3.6 would turn the base into a breakout.

Figure 1: Daily chart for JDSU.
Graphic provided by: MetaStock.
 
The red arrows show overhead supply around 3.6 and the stock has been turned back at this level at least four times since Dec '02. Even so, the stock managed to form a higher low after each pullback and this shows buying interest at higher and higher prices, which is bullish and reflects accumulation. The problem remains overhead supply around 3.6 as demand has yet to muster the muscle required to overpower supply.

As a bullish continuation pattern, expanding volume is important to validate any breakout. Advances require expanding volume and new buying to be sustainable. Low volume advances should be viewed as suspect and likely to fail. Should JDSU punch through 3.6 on good volume, the projected advance would be to around 5 (3.6 - 2.3 = 1.3, 3.6 + 1.3 = 5). Though not much point-wise, it represents a good percentage move for a low priced stock. Should JDSU fail and move below 3, it will be back to base building.



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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