Investor Education: JDS Uniphase Placed Plenty Of Investors On Fiber-Optic Diet

Uniphase started what would be a monumental move in December 1998. The San Jose-based maker of fiber-optic components was in the process of joining forces with Canada's JDS Fitel. The combined company is known these days as JDS UniphaseJDSU.

Broadband was the buzzword back then, and companies that made products to speed up the bits and bytes of data saw big increases in their respective stock prices.

The Base

Before breaking out, JDS had strong IBD Ratings: EPS 90, Relative Price Strength 79 and Accumulation/Distribution B. And it had an up/down volume ratio of 1.1, suggesting positive demand.

In its most recent four quarters, earnings growth had fallen 88%, then risen 675%, 4% and 41%. Its five-year growth rate was 45%.

At the time, the Nasdaq was fighting back from a nasty 33% sell-off from July to October.

JDS Uniphase started its correction a bit earlier. After hitting a high in June 1998, the stock plunged 50% over the next 15 weeks. That's steeper than you'd like to see, but stock declines of 11/2 to 21/2 times the market's are common in a bear market.

The stock's entire base spanned 22 weeks. Near the end of JDS' decline, the stock gapped down a few times. On Sept. 17, it gapped lower, ending more than 11% lower on nearly five times average trade (point 1). It bounced back over the next four sessions, but faltered after nearing resistance at its 200-day moving average (point 2).

JDS made a new low on Oct. 5. Shares were down as much as 22%. But by the closing bell it had shaved about half of those losses (point 3).

Some big buyers stepped in as the stock rebounded. On Oct. 16, JDS regained its 50- and 200-day moving averages on healthy volume (point 4).

JDS cleared a handle on Dec. 1, but volume was light (point 5). Two sessions later, the stock took out its June high on above-average trade.

Shares eased in the next six of seven sessions. Those who waited to buy at new highs were most likely stopped out. Investors who got in at the handle were still in the game.

The Run-Up

Looking at the stock's weekly chart, the price action was astonishing. The start of a new bull market in October 1998 helped fuel JDS' move.

There were no severe shakeouts during the stock's sharp uptrend. JDS pulled back to its 10-week line a number of times, but shares always snapped back (point 6). The number of advancing weeks greatly surpassed the down weeks.

The Top

In late December 1999, JDS announced its third 2-for-1 stock split in just over two years. The stock was more than 100% above its 40-week moving average (point 7).

If you rode the stock from the breakout to that December, it was a good time to take some money off the table.

Splits and extended stocks are signs of climax action and would have spelled doom for most stocks in normal bull markets. But this was a bubble, and stocks defied convention.

JDS ramped even higher from there, but the end was looming.

On March 13, 2000, JDS announced yet another 2-for-1 split. That came just three days after the Nasdaq hit a record high.

The stock notched its own peak on March 7 (point 8), but then had a change of heart and ended down for the day. Sellers jumped in the next day, sending shares down on almost twice normal volume. This was another good time to lock in gains.

Over the stock's 15-month run, it rose 2,000%. These days, JDS is trading at a fraction of its all-time high, a casualty of the Internet bubble.