I was wondering if I could get your input on JDSU in the very short term like in the next bounce. Took a pretty big hit again so looking for cheaper stocks for one or two plays until we can play the indexes again. It seems we lose maybe 1 out of 10 trades but the 1 loss always seems to hurt the most.

Your question has a couple of very good points in it. First, let’s look at JDSU. A major fiber equipment company that enjoyed explosive growth in 1998 and 1998. It was another one of those Cinderella stories that made investors a lot of money. Then it became the darling and everyone had to have it. That was just about the time the market started to correct. As it sold off, analysts continued to tout it; if it was a value at $200, it was a real value at $100! It closed Friday at $5.36.

Since June it fallen from 18 to about 6, a two-thirds drop. After testing the 50 day MVA in April and May, it started the latest downtrend. As we covered in TA1 seminars, stocks in uptrends or downtrends tend to test the 50 day MVA and then ride up or down the 10 and 18 day MVA as they continue their trends. They usually make 4 to 5 rotations and then test the 50 day MVA again. As for JDSU, that means it tested the 50 day MVA, and now has bounced down, bumping up against the 18 day MVA as it moves up after every time it sells down. JDSU has been in such a strong downtrend, it has not yet broken back up toward the 50 day MVA; there has been no relenting with respect to the sector to allow it to rally back up. In fact, since early August, it has not even been able to rally up to the 18 day MVA. It too is getting very oversold, and volume is up the last three sessions as it is trying to make some bounce higher. Right now the 18 day MVA is at 6.50. At this point it would be a good move to see it rise to that level. If you buy 1,000 shares, you could pocket $1000 or so on that move (depending upon your commission charges). That is a tough trade right now; by the time we determine it is a real move higher, it has eaten up most of the move as it clears its 10 day MVA. The better play is an oversold rally up to the 50 day MVA. That would mean letting it clear the 18 day MVA resistance to give us better odds. Otherwise, JDSU may just continue to bounce down from that 10 day MVA, becoming more and more oversold. Let it change its pattern and start that bounce higher over near term resistance. Is it the best play out there? Not in our books, but it can be done.

The other note in the play is one of the hardest: that one trade that wrecks your other winners. In this market be ruthless in cutting losses or taking profits. Sometimes a stock gaps away from you and there is not a lot you can do about it. In most instances, especially in this choppy market, a move starts to fizzle before it really gets where we want it and we freeze, hoping it will continue, knowing it probably won’t. Then we get hurt. Avoid the hope; kill it before it really hurts and look for the next better game.