This Flashing LITE Bull Signal Has Never Been Wrong

LITE short sellers are building their positions

Deputy Editor
Feb 10, 2021 at 1:11 PM
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The shares of Lumentum Holdings Inc (NYSE:LITE) are up 0.5% at $87.50 at last check, in the wake of reports that its buyout agreement with Coherent (COHR) may be in trouble. Coherent is evaluating an unsolicited cash-and-stock buyout offer from MKS Instruments (MKSI) that comes in slightly higher than the deal Lumentum and Coherent agreed to on Jan. 19.

LITE has struggled on the charts recently, down 7.4% year-to-date, with overhead pressure from the 100-day moving average emerging. Investors shouldn't worry just yet, however, as the security's latest pullback has it near a historically bullish trendline, which could push the stock higher in the coming weeks.

More specifically, Lumentum stock just came within one standard deviation of its 200-day moving average, after spending a considerable time above the trendline. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, six similar signals have occurred during the past three years. Invariably, the security enjoyed positive returns one month after each signal, averaging a 9.5% gain. From its current perch, a move of similar magnitude would put LITE at $98.30 -- a step in the right direction to move closer to its previous Jan. 12 record peak of $112.08.

LITE Chart February 10

A short squeeze could fuel additional gains for the security, too. In the last two reporting periods, short interest rose 32.7%, and now the 8.45 million shares sold short account for a healthy 11.5% of the stock's available float -- over five days' worth of pent-up buying power.

Meanwhile, there's ample optimism in the options pits. In fact, the equity sports a 50-day call/put volume ratio of 13.50 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands higher than 87% of all other readings from the past year. This implies calls have rarely been more popular during the past 10 weeks.  

Lastly, now seems like the right time to weigh in on LITE options. The security's Schaeffer's Volatility Index (SVI) of 43% sits in the 9th percentile of all other annual readings, meaning the stock sports attractively priced premiums at the moment.

 

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