Should You Buy Lumentum (LITE) After Golden Cross?

Lumentum Holdings Inc. (LITE) is looking like an interesting pick from a technical perspective, as the company reached a key level of support. Recently, LITE's 50-day simple moving average crossed above its 200-day simple moving average, known as a "golden cross."

There's a reason traders love a golden cross -- it's a technical chart pattern that can indicate a bullish breakout is on the horizon. This kind of crossover is formed when a stock's short-term moving average breaks above a longer-term moving average. Typically, a golden cross involves the 50-day and the 200-day moving averages, since bigger time periods tend to form stronger breakouts.

There are three stages to a golden cross. First, there must be a downtrend in a stock's price that eventually bottoms out. Then, the stock's shorter moving average crosses over its longer moving average, triggering a positive trend reversal. The third stage is when a stock continues the upward momentum to higher prices.

This kind of chart pattern is the opposite of a death cross, which is a technical event that suggests future bearish price movement.

LITE has rallied 31.1% over the past four weeks, and the company is a #3 (Hold) on the Zacks Rank at the moment. This combination indicates LITE could be poised for a breakout.

Once investors consider LITE's positive earnings outlook for the current quarter, the bullish case only solidifies. No earnings estimate has gone lower in the past two months compared to 8 revisions higher, and the Zacks Consensus Estimate has increased as well.

Investors should think about putting LITE on their watchlist given the ultra-important technical indicator and positive move in earnings estimates.

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This article originally published on Zacks Investment Research (zacks.com).

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