Tastes Great! Less Filling! Here’s your trade on LITE.. (September 29, 2016)

by DAN LITE 
I want to look at Lumentum ( NASDAQ:LITE ) and here’s why: This is not an IPO, it is a spinoff. The stock has been trading for a little over a year and we have some really nice momentum. Here is the thing (this is really easy), as long as the stock is staying ABOVE the 20-day moving average you want to be buying this on any kind of dip. This is the channel, the stock is not even coming BACK to the 20-day moving average. The way it is working here you could see this possibly trading sideways for a while, which, as each day goes by, gives this 20-day moving average time to catch up to it.

So what I would suggest doing is this: If you are long the stock just stay there. It is just not giving you a great entry now. But if you want to be long the stock this is how you set your risk: Lets say you are buying here at 41.41. You say, “I don’t want to be long this stock if it trades below the 20-day moving average or this middle Bollinger Band.” So you have got about a 6 percent risk on this trade. That is how you enter a stock like this at the price level that it is at. You have a clearly defined risk and you are not going to get shaken out because you have already got your risk set. You are not going to sell this stock unless it starts trading below the 20-day moving average.

Now, with that said, another little pullback for a day or two would be good. Ultimately that is what we want. What I am really telling you is this: This is a great stock to own but it is not a great buying opportunity right now. It is not really giving us a good buying opportunity now. The last time this silly stock was at the 20-day moving average was down here, when it broke out above, it never has looked back since that time. It is up over 70 percent so it is a tough stock to buy. But if you have your risk clearly defined then you CAN buy the stock and hold it with some degree of confidence.

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