Stocks beyond the headlines
06/07/18

With the Nasdaq 100 (NDX) fueling the current phase of the market’s rebound from the February correction (see “Tech on the verge”), individual tech stocks—even those that aren’t household names—have the potential to garner more trader interest.

It may be a good news, bad news situation. Although most people won’t complain about a rally, the problem with a hot sector is that it can be too hot—a high-momentum uptrend is your friend right up until the moment it ends, at which point buying that stock on its seventh straight day of record highs can be a painful experience.

Recently, internet software and services stocks have been one the strongest areas of the S&P 500’s (SPX) tech sector—just take a look at TechTarget (TTGT), Coupa Software (COUP), and XO Group (XOXO) to see why this group was up around 4.3% over the past five days compared to the SPX’s 1.3% gain. These stocks are all trading at or near long-time or all-time highs, some after explosive up moves in May.

They could all keep going higher, of course, but their lofty levels may make some traders wonder if there are other tech names that may be a tad less overheated, but still able to ride a rising tech tide, should that continue.

That brings us to networking tech company Juniper Networks (JNPR), which has traded itself to an interesting position in recent days:

Nasdaq 100 (NDX), 1/25/18 – 6/5/18. Nasdaq 100 (NDX) price chart. Run to the highs

Source: OptionsHouse

The stock staged a nice rally off its April low before consolidating right around the level of its February high in late May. (By the way, that ridiculously huge day in early May followed the company’s positive Q1 numbers release, which topped both earnings and revenue estimates.) After a brief pullback at the end of the month, the stock pushed right back to the top of the consolidation yesterday.

There’s no law that says chart gaps have to be filled, but some traders will probably be watching to see if an upside breakout above this level will lead to enough momentum to fill the February down gap, and perhaps propel the stock toward its pre-correction highs around $30.

In addition to the stock’s price action, about an hour into yesterday’s trading session, LiveAction scans showed JNPR had one of the highest call/put ratios of the day:

LiveAction scan, 6/6/18. JNPR high call/put ratio.

Source: OptionsHouse

Although it’s possible traders were shorting JNPR calls as the stock approached a perceived resistance level (see “Rally pumps up the volume in options” for an example of this scenario), the fact that it first tested that level on May 22 and has since remained in the general neighborhood may support the idea that options traders are favoring an upside breakout of the recent consolidation—an outlook that also jibes with broader tech strength and the NDX making headlines with new record highs.

Market Mover Update. Applied Optoelectronics (AAOI) has remained below Monday’s spike high and sold off nearly 6% intraday yesterday before stabilizing.

And yes, the Nasdaq 100 made it official yesterday, hitting a new all-time high yesterday after two days of record closes.

 

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1 Bloomberg.com. Goldman Sachs Doesn't Think There's a Bubble in Tech Stocks. 6/4/18.