Morrow: Juniper Hits Overbought Territory

NEW YORK (TheStreet) -- Juniper Networks (JNPR) is extending last week's powerful breakout move with another surge Monday as shares are jumping 8.8% to $25.61.

The stock opened this week with a huge gap-higher open that pushed the stock well into new 52-week high territory. This very-bullish action is attracting extremely heavy trading and the shares appear poised for their biggest one-day gain since 2012. 

On Friday, news of a huge option bet sparked a 3% ramp that lifted the stock past a heavy layer of supply near its 2013 high. The $23 level had come back into play earlier in the week and despite a big jump in upside volume on Tuesday and Wednesday, this area appeared to be holding again. As last week closed, the $23 area had been convincingly cleared, setting JNPR up well for a new up leg. 

The powerful two-day run for Juniper is not a countertrend move. JNPR has been performing extremely well since leaving behind major support near the $18.50 area.  The stock held this support zone in early November, just when it looked like a new down leg was about to begin. By the end of the month, JNPR was back in the middle of its five-month range, but was still putting in place its third-straight lower monthly high.

Early December is when the picture began to turn much more bullish.  JNPR had five-straight gains on well above average trade beginning on the Dec. 3.  Two days later the stock had taken out a key overhead trendline, and by the end of the week it hit a higher monthly high for December. This breakout move sparked the second leg of a major bull run. After a shallow pullback, and retest of key support near $20.70, Juniper rallied 10% through month end. With the addition of the last two days of gains, JNPR is up more than 35% from the major August/October/November lows and is set up well for more upside. 

In the near term, Juniper is moving into overbought territory. The stock may need a bit of back-and-fill action before the rally continues. JNPR now has layers of healthy support in place and a pullback and short-term base near one of these zones will offer a low-risk entry for patient investors.

The initial layer of support is the stock's 40-week moving average, which was pierced today for the first time since late summer of 2011. Just below the $24.45 level is today's huge upside gap at $23.90. I am long JNPR and will be adding on weakness. I believe a dip below the $24 level will provide low-risk entry. 

by Gary Morrow in New York.

At the time of publication, Morrow was long JNPR.

Gary Morrow is president of Yosemite Asset Management, LLC, a registered investment advisory firm in San Luis Obispo, Calif. He manages individual accounts through Charles Schwab and runs a long/short hedge fund. Prior to forming Yosemite, Morrow spent 12 years on the floor of the Chicago Mercantile Exchange trading foreign currency and interest rate futures. He holds a bachelor's degree in economics from Ripon College.