Here’s your trade on Lumentum Holdings (LITE) (November 12, 2018)
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Today I want to look at Lumentum Holdings ( NASDAQ: LITE ). This is the company that provides the 3D sensing lasers for facial recognition to Apple ( NASDAQ: AAPL ); they guided lower today. This is really not a complicated thing here, they are getting less business from Apple ( NASDAQ: AAPL ) and it is not because Apple ( NASDAQ: AAPL ) is going elsewhere. It is because Apple ( NASDAQ: AAPL ) is selling fewer iPhones.
Doesn’t it kind of make sense when you look at this and then you combine this with Apple’s ( NASDAQ: AAPL ) statement, last week when they reported earnings, that they are no longer going to be reporting their iPhone sales, their iPad sales, their Mac’s, stuff like that. This is not what a company that wants you to see everything they are doing, this is not something that they do. They can do it, they have a right to do it and it’s nice that they are telling us in advance.
When you look at a stock like Lumentum Holdings ( NASDAQ: LITE ) or Lumentum Technologies, this is a really bad sign for this stock. However, with that said, we are not owners of LITE ( NASDAQ: LITE ) here, we are traders of stock. It seems to me that there have been several other stocks lately that have been really good to us but it seems like this can be ready for an oversold bounce. It’s fine to guide lower but 33 percent of your market cap in a day, that is probably a little bit more of a stretched rubber band than you are really going to see.
Simply put, if you want to trade this stock you want a real simple rule, here it is: The low of the day here was 37.00 so that is kind of a line in the sand. What you want to be doing is, this is just a general, general rule, you only want to be buying this stock if it is above the close here of 37.50 and you are relying on this $37.00 low as really kind of a floor for the stock.
Now, there is a potential that the stock could gap down tomorrow on the “oh crap” trade. Meaning, folks are owing this stock, they don’t see what’s happening intraday. They come home and they look at their account statement or in the newspaper and they say, “Oh crap, I’m long this stock. I have got to get out of it.” They put in market orders to sell at the open because they want to make sure they sell it before everybody else does.
Seriously, people do think like that; so then they want to sell the stock, that pushes it down even lower and then the stock snaps back. In that event, of course, then 37.00 is not going to be the floor. It is not going to be the ceiling either it is just going to be a level that you look at. And then once the stock starts pushing through 37.00 that is when you would make your purchase with a stop below wherever the opening print was.
Anyway, I think there is a trade to be made on LITE ( NASDAQ: LITE ) tomorrow; but not absolutely because you can look and see what Roku ( NASDAQ: ROKU ) did. It had a similar gap down and then it just kept going and going and going. So don’t just trade this reflexively and say, “Well, it is down 30 percent so I am going to go ahead and buy this stock.” Make sure you have a good trade setup. If you have a good trade setup then you just stick to your plan. Plan your flight – Fly your plan. Any good pilot will tell you that. Any good trader will tell you the same thing.
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