When we combine an interesting news catalyst with a supportive technical backdrop on a stock’s charts, we often get high-probability trade setups. After discussing a trade setup in Family Dollar (FDO) around a potential buyout rumor, another similar setup popped out at me, this time involving communications equipment company Juniper Networks (JNPR).
On Thursday, JNPR stock closed 0.8% higher on the day, although it was up by as much as 4% at one point. The stock rose on the back of a report from the German publication Manager Magazin Online that Nokia (NOK) was considering a takeover of the Juniper Networks.
Later in the day, JNPR said it would return a minimum of $3 billion to shareholders over the next three years via a mix of share buybacks and dividend payments. The network equipment maker, which currently does not pay a dividend, said it would start off with a 10-cent quarterly dividend payment as of Q3.
This dividend fun should please Elliott Management, which owns a 6.2% stake in JNPR stock and for some time has pushed the company to issue dividends and buy back its own shares. The hedge fund also continues to suggest to Juniper that it should focus on delivering networking equipment for mobile carriers.
So, the news catalysts here are very positive. For one, if the rumor has any truth to it, then JNPR is being considered a takeover target, and second, an activist hedge fund with a meaningful stake in the company is pushing the stock in the right direction … at least for now.
On the charts, JNPR stock looks equally interesting both on the multiyear and near-term time frames.
On the multiyear chart, note that after breaking past an important resistance line (black) last December, the stock has popped higher sharply and worked well into the big down-gap dating back to July 2011. The yellow box on the chart marks the remaining area to be overcome, on order for JNPR to completely fill this gap. This would be accomplished if the stock moves toward the $31.20 area.
On the daily charts, note the tight consolidation range in which JNPR stock has been trading since late January. On Wednesday, Juniper again failed to overcome immediate-term resistance, but that’s exactly what I am looking for to get long the stock. The stock is well extended above its moving averages (note how far away the red 200-day moving average is), but that shouldn’t be a big issue given the aforementioned news catalysts.
In short, I am looking to buy JNPR stock on a break above $28.40, and a break back below $27 would get me back out of the stock. Juniper has a next upside target at $31.20.
Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
