For a current investment in JDSU (short-intermediate term) -- here are some key
points that stand out currently.
1. Stock removed from Q's resulting in large volume day on Friday.
Stock traded almost 4 times normal volume and obviously most of the
volume was driven by sellers readjusting the Q's. Even with that, the
stock held up fairly well closing down only about 40 cents. That says
to me that there were plenty of folks willing to soak up all that
selling -- this is not retail folks buying. I thought JDSU could fall
by as much as a buck on the Naz rebalance. Now that JDSU is out of Q's
that has other implications that I'll address in a bit.
2. Even with recent pressure after EPS spike the stock held the 50 day
MA. MACD stayed on slightly bullish territory and RSI is neutral, but
any improvement will put in solidly bullish territory. Again, all good
signs -- esp. considering that JDSU is still barely above $2 on a
pre-split level and I imagine some tax loss selling has been occurring
in the name.
3. Recent action in OPTM & CIEN should bode well for JDSU. CIEN &
JDSU have been sister co's for quite some time and it's fairly unusual
for one to really do well without the other participating.
4. While I don't think we will have a huge Classic Jan. effect this
year, that doesn't mean some co's will not act exhibit a good Jan
effect bounce. JDSU is one of those names.
5. Negativity still very high even while stock is Technically good at
a minimum. That is a classic divergence pattern I look for.
6. Fundies are improving but maybe more slowly than names like CIEN.
I still think the T&M business will continue to show solid progress
with the continued global build out. And that part of the business is
probably very undervalued within the stock -- in a very similar manner
that I think the networking biz within MRVC is undervalued.
7. Back to being out of the Q's. While some may think of this as a
negative, I think it could help much more than hurt in the future.
JDSU has been a name long loved by the shorts to hit hard on any big
day's of NAZ weakness. Yet on big up days, few folks target JDSU for
trading for upside moves. Names like GOOG AAPL QCOM BRCM etc... tend
to get the nod for that type of action. Now that they are out of the
Q's we could dramatically less short sided targeting manipulation.
That could serve to strengthen the longer term TA picture as the stock
could exhibit a more stable trading pattern which many institutions
like to see.
Sometimes trading dynamics like this are way more important to stock
performance than many other factors.
8. Another note of Q's. Many times stocks removed from the Q's end up
doing very well just due to sector and valuation dynamics. In other
words, Index rebalancing is all about putting in new names based on
increased market cap & visa versa. I.E., the index is basically buying
the high & selling low. The Q's don't have a lot of changes every year
but the Russell and S&P have many more names and there are trading
systems based on buying the rejects of those indices and results are
quite good.
9. Short interest. While not super high it's still plenty high with
11mm out of 200+mm shares outstanding or 5.6% of float at last report.
Not sure this helps much this month, as the shorts will figure to ride
it through tax loss selling. But late this month and into next year I
expect to see more short covering. Moreover, a good EPS report next
qtr. could nearly put the nail in the shorts coffin.
10. With T/BLS issue I am not confident of big beats out of JDSU for
the next 1-2 qtr's but I still think they will be solid vs. the co's
conservative guidance. Once T/BLS issues are resolved I would expect a
return to some qtr's of strong results and guidance.
11. Lastly, any little bit of positive EPS & cash flow in the next
couple qtr's could send the shares higher.
Bottom line. I continue to like the setup.
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