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Overbought Stock of the Day: Juniper Networks (JNPR)

Overbought Stock of the Day: Juniper Networks (JNPR)

Chip stocks have been a popular trade in today’s markets. One sign is from Juniper Networks (JNPR). Shares are up nearly 30 percent since the start of November, and 10 percent since the start of the year. So it should be no surprise that shares are looking overbought.

That’s most apparent from the stock’s relative strength index, or RSI. It recently topped 80, well into overbought territory. Shares could head higher for a few more sessions, as chip stocks tend to get much more overbought on average than other sectors—but the space is rope for a pullback.

Action to take: The March 2021 $22 put options have a bid/ask spread near $0.35. That makes for an inexpensive downside play that could even double if the stock hits the skids. Chances are traders will want to book a quick downside profit in the coming weeks.

Shares are more likely to pause or drop slightly before heading higher, so look at the short-term trend as a quick profit. Once that downside move does occur, look for a bigger trade on the long side. That’s because shares are nearing a golden cross, which tends to bode well for a stock in the months ahead.

Traders might want to have a target in mind for the next swing higher, such as the July $25 calls. Currently trading for about $2.30, they can probably be bought under $2 on a dip in shares.