The Run in Lumentum Stock Is Supported by These Metrics

lite stock
Credit:iStock.com/phongphan5922

LITE Stock: Obediently Bullish

I originally featured Lumentum Holdings Inc (NASDAQ:LITE) stock in a report published on April 20, 2017, titled “Lumentum (LITE) Stock Chart Continues to Suggest Higher Prices.” In that report, I outlined why I was enamored with this company and why I believed that higher Lumentum stock prices were on the horizon. Since that report was published, LITE stock has performed on par with expectations and is up to the tune of 31.22% over that time frame.

The reason that drew me to Lumentum stock in the first place hasn’t changed. This investment is extremely disciplined as it abides by the rules set out by technical analysis, which is the method I employ to analyze potential investments.

If this is your first time reading one of my publications, let me briefly explain what technical analysis is. It is a method of investment analysis that is predicated on using historical price and volume data to forecast the direction an investment is heading in next. I have spent the better part of two decades studying and applying this method, and when it is done correctly, the results are simply outstanding.

Every indication on the company’s stock chart that drew me to LITE stock in April of this year is still in force, which means I am still enamored with this investment. These indications continue to suggest that the trend towards highers stock prices is likely to continue.

The following Lumentum stock chart illustrates the constructive price action that has supported the trend towards higher stock prices.

Lite price chart

Chart courtesy of StockCharts.com

This LITE stock chart has been annotated in order to highlight the waves that create constructive price action.

The waves highlighted in green are impulse waves. An impulse wave functions to define the stage in a bull market where the stock price appreciates in a swift and linear motion.

The waves highlighted in purple are consolidation waves. A consolidation wave functions to define the stage in a bull market where the stock price corrects from its highs. This wave serves to unwind the overbought conditions that were created during the preceding impulse wave. Unwinding an overbought condition sets up the required environment so a new impulse wave can develop.

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These two distinct waves fuel each other, and in an alternating wave structure, they create an environment where a trend can sustain itself and flourish.

The Lumentum price chart is a prime example of these waves in action.

In October 2015, LITE stock bottomed at price of $13.97. Over the years, the stock price has appreciated by creating a series of higher highs and higher lows using constructive price action. Lumentum shares currently sit at $58.30, representing a 317.32% return since it bottomed, and there is little to suggest that this trend towards higher stock prices is going to end anytime soon.

In fact, the price action has been so orderly and defined that further gains can be expected.

The following Lumentum stock chart illustrates other technical indications that have been supporting this move towards higher stock prices.

lite stock chart

Chart courtesy of StockCharts.com

This LITE stock chart illustrates the same price chart, but this one has been annotated to illustrate levels of price support and resistance.

The first metric supporting this bullish advance has been an ascending channel. This technical price pattern is created using two upward-sloping trend lines that represent levels of price support and price resistance.

Since the bullish trend began in 2015, LITE stock has been oscillating in between these levels of price support and price resistance. Given the positive slope of these trend lines, it is safe to say that as long as the stock price is contained within them, the price of Lumentum stock will appreciate over time.

The second metric supporting the bullish advance is the 200-day moving average. This metric just so happens to coincide with support outlined by the ascending channel. The 200-day moving average acts a dividing line that is used to determine whether an investment is bullish or bearish. Lumentum stock is clearly trading above this metric, so it is definitely a bullish indication.

The coinciding levels of support are also the stopping ground. Every time support has been tested, buyers have been eager to step in and support these metrics. If for some reason the stock price falls below these coinciding levels of price support, I will have all the reason I need to suggest that a bullish view on this investment is no longer warranted.

Analyst Take:


Lumentum stock has appreciated by 31.22% since I covered it last. Everything that made this investment compelling in April of this year is still suggesting that the path of least resistance for LITE stock is towards higher prices. As a result, I will continue to hold a bullish view on this investment for as long as it remains above the levels of price support that were outlined.