Trade Lumentum Holdings (NASDAQ: LITE) for a Potential 75% Return in Eight Weeks

We saw a mix of activity on Friday with two indices moving higher and two moving lower. All four indices opened lower and it took rallies in the afternoon for the two to make it up to positive territory.

The Russell led the way with a gain of 1.28% and the Nasdaq inched up 0.09%.

The S&P slipped 0.30% and the Dow fell 0.57%.

The sectors weren’t nearly as evenly split as the indices. Eight sectors moved lower and only two moved higher. The utilities sector gained 0.14% to lead the way and the communication services sector inched up 0.04% as the only other sector to gain ground on the day.

On the down side, the financial sector fell 0.72% as the worst performer. The industrial sector and the energy sector tied for the second worst performance with both falling 0.52%.

My scans turned slightly more negative on Friday with 30 bearish signals and 12 bullish signals.

Despite the consecutive negative readings from the scans, the barometer continued to inch higher. The final reading on Friday was -10.9, up from -14.6 on Thursday.

Today’s trade idea is a bullish one on Lumentum Holdings (Nasdaq: LITE). The company has great fundamental readings with an EPS rating of 96 and an SMR rating of an A.

Lumentum dropped sharply last Tuesday after the company announced the acquisition of Coherent (COHR). Two things stood out to me about Tuesday. First, the stock found support at its 50-day moving average. Secondly, the stock rallied to close just shy of the $95 area. That area served as resistance back in August. The stock would rally over the next three days and moved back above that area.

Buy to open the March 95-strike calls on LITE at $9.50 or better. These options expire on March 19, 2021. I suggest a target gain of 75% and that means the stock will need to reach $111.63. The stock was trading above $112 when it peaked a few weeks ago. I recommend a stop at $94.00.

— Rick Pendergraft

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.