We’ve been stalking Lumentum Holdings ($LITE) and finally bagged it. (June 30, 2020)


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I want to go back to Lumentum Holdings ( NASDAQ: LITE ) here. You can see the advantage of what I call “stalking a stock”. Where we see the stock come off of the rebound here; you can kind of draw the lines here as I have, where this is a, I guess you could say it’s a symmetrical triangle where the prices are converging.

The idea on a stock like this is, starting a small position here; because you have got a lot of supply overhead, recent people that have bought the stock at a higher price than it’s trading for right now, a lot of them are going to be happy to dump their shares at break-even. So there is all this supply here, you have got to be real careful.

But if you are buying it then what you do is you put a tight stop right down there so you are not really risking too much money. You are not making a bunch of money if you are correct because you have a small position but you are getting into the stock. Ultimately, the idea is, if the stock goes up you’ve got a low cost here initially. So that when you are buying more shares at higher prices your cost basis, your overall cost basis is good.

We’ve got this move here and then the next day it rallies up and comes back but still closes up on the day. Finally then, just yesterday, we get this kind of a tentative breakout or so and then boom, today we get the big move higher. So I am looking at this high volume day here from last Friday as a key day for institutional buying. I think this got added to an index, I think that’s the deal, but as the market stays stronger I am looking for higher prices here.

What I would suggest doing is, I think you could buy the stock here and then maybe just put the stop underneath, say, the 50-day moving average or maybe you can find the exact center of the triangle here and then put your stop just below this.

The idea is, if the breakout is not valid then you don’t want to be long the stock. If the breakout is valid then it should not pull back further than right about here. So if it pulls back here and starts rebounding, frankly, you can buy some more. But if it pulls back here and keeps going, that’s okay because your stop was hit right there.

So you don’t want to be in a stock that has failed the breakout but right now it’s not failing it’s actually looking pretty good. It took a while for this trade to unfold but it finally has, so I hope you are making some money.

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