When screening for trades, I love to see technical strength, fundamental strength and what I call the intangibles, usually a powerful theme or catalyst that can help drive a stock higher. Lumentum Holdings Inc (NASDAQ:LITE), a communications equipment company, has all three going for it right now.
Starting with the intangibles, this company has exposure to several next-generation themes with its work in optics and sensors. For example, LITE has ties to Apple Inc. (NASDAQ:AAPL) with its 3D sensors.
Fundamentally, earnings are expected to grow 30%-40% a year for the next several years, which will help drive further upside.
That brings us to the chart, which is very attractive right now. I’ll highlight a couple of points here, and then if you want more details, I have a video analysis of LITE posted as my Chart of the Day on my MoneyWire website.
First, LITE has just recently managed to break above what had been resistance around $55-$56. It failed at that level back in late March and retreated to $40, where it bounced right off its 200-day moving average (the red line) and then rallied back up. It broke above $55-$56, and then after a pullback and consolidation, broke out again on strong volume. You’ll also notice strong support at the 20-day moving average (the green line), which has held since LITE gapped up in May.
The reason it’s on my radar right now is the consolidation that is taking place. Within this consolidation, you see a series of higher lows, which is very bullish. LITE is also in an ascending triangle formation, which is created by an uptrend on the bottom and a flat line (usually resistance) on top. This is also bullish.
The one caution light right now is that it is borderline oversold. You can see that the relative strength index (RSI) at the top of the chart is close to 70, which is the oversold threshold. Still, if you’re an experienced trader, you probably know that stocks in RSI overbought territory can continue to rally, sometimes for a long time.
LITE meets all of my NexGen trading criteria, and we could see a major breakout if it clears $65. I’m simply watching for the right entry point.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.