Every week in the Tuesday Tumble, we will explore a potentially overloved stock that may be vulnerable going forward, from a contrarian perspective. This week, our choice is tech firm and S&P 500 Index (SPX) component JDS Uniphase Corp (NASDAQ:JDSU).
Starting with a look at the charts, we notice that the Milpitas, Calif.-based company has struggled in spite of the broad-market rally in 2013. Specifically, while the SPX is up nearly 30% on a year-to-date basis, JDSU is down almost 4% to trade at $12.99. Things don't get much better on a shorter-term basis, either. During the past two months, the shares have underperformed the SPX by more than 20 percentage points.
If that's not enough, JDS Uniphase appears to be running into a level of technical resistance. Specifically, the stock is sitting just below its 80-week moving average, which has short-circuited numerous rallies in the past -- most recently in September 2012.
Despite JDSU's dubious technical track record, the security remains a favorite among the option bulls. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day call/put volume ratio of 10.88, with nearly 11 calls bought to open for every put. What's more, the current reading is just 4 percentage points shy of an annual acme, meaning speculators have picked up JDSU calls over puts at a near-extreme pace in recent weeks.
In a similar vein, Schaeffer's put/call open interest ratio (SOIR) for the shares sits at 0.48. In other words, among options with a shelf-life of three months or less, call open interest more than doubles put open interest. Relatively speaking, the SOIR happens to be lower than 82% of similar readings from the past 12 months, signaling a stronger-than-usual preference for short-term calls over puts. Should JDS Uniphase continue to struggle, however, an unwinding of these bullish bets has the potential to drop the shares lower.
Finally, the experts on Wall Street are surprisingly smitten with JDSU. For one, seven out of 11 covering analysts rate the shares a "buy" or better, versus four "holds" and not a single "sell" or worse recommendation. For another, the stock's consensus 12-month price target is hovering at $15.04 -- nearly 16% higher than the current share price. Suffice it to say, a round of analyst downgrades and/or price-target cuts may soon come down the pike. Should that happen, don't be surprised if JDS Uniphase Corp (NASDAQ:JDSU) tumbles even further.
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