Time For Yet Another Pairs Trade As Juniper Networks and Cisco Systems Plunge

(This is an excerpt from an article I originally published on Seeking Alpha on May 26, 2012. Click here to read the entire piece.)

{snip}

I became so comfortable with the JNPR side of the trade that I never blinked while accumulating a fresh JNPR position over the past two and a half months without establishing a short CSCO position. Departing from the original strategy was costly given JNPR has now returned to 2011’s multi-year lows AND I was not positioned to take advantage of another disastrous earnings report from CSCO two weeks ago. The additional irony is that the CSCO/JNPR ratio has bounced around the key 0.95 level over the same time I have built up the long position in JNPR.

Source: StockCharts.com

So, it is time to leave the past behind and re-initiate the proper pairs trade. I prefer using options given the promising upside potential. While the profits last year were made on the long side, I think it is much more likely that the profits this time will be made on the short side. {snip}

CSCO’s chart is even more telling from a longer-term basis. {snip}

Click image to see a larger view…

A monthly view of CSCO makes the steady decline even more clear. {snip}

Here is JNPR’s monhtly chart for comparison…{snip}…JNPR still has some longer-term positive momentum.

Source for stock charts: FreeStockCharts.com

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on May 26, 2012. Click here to read the entire piece.)

Full disclosure: long JNPR calls