Finisar Forges an Island Reversal (What now?) - Lumentum Hits Retracement and II-VI Corrects within Uptrend - Plus 4 More | Art's Charts

.... Selectively Consuming News
.... Finisar and VCSELs
.... Narratives are Dangerous
.... Finisar Forges an Island Reversal
.... Lumentum Firms near Key Retracement
.... II-VI Corrects within Uptrend
.... Stocks to Watch (CENX, JJU, PRGO, LH) ....

I do follow the financial press on a regular basis, but on a very selective basis. I am mostly interested in stories on individual companies to better understand their business and where they fit (sector/industry). I do not watch CNBC or Bloomberg on during the day. Instead, I browse their video archives for stories that interest me. This means I can skip politics, CEO interviews, old news, no news, sensation and fluff. (CNBC US Video and Bloomberg).

In addition, I also browse Barron's and IDB for stories on individual stocks, sectors and industry groups. IBD, in particular, is a good source for learning the growth names. Note that there are plenty of free articles on both websites and these usually supply enough background information for my needs. All in all, I spend less than an hour per day consuming news on these sites. (Barrons Real-Time Analysis and IBD News).

Finisar and VCSELs

The news that Apple (AAPL) was investing $390 million in Finisar to insure its supply of vertical-cavity surface-emitting lasers (VCSELs) caught my eye Wednesday. I did not know what a VCSEL was until yesterday. After reading a few articles and watching this interview with Dan Niles, it seems that this will be a growth market over the next year or more. VCSELs are not just for iPhones, but also for the other 80% of the smart phone universe.

Dan Niles, Alpha One Capital Partners, reacts to Apple's $390 million grant to Finisar and talks about the 3-D sensing market, which is slated to be ten times bigger in five years. Symbols: LITE and FNSR

Narratives Can be Dangerous

Fundamental information is dangerous because it can be used to build a narrative in support of an ugly chart, and I am not talking about short-term ugliness. I am talking about long-term downtrends, new lows, and 50-day EMAs below 200-day EMAs. Keep in mind that the market already knows EVERYTHING you are reading and this means it is already priced into the stock. As Lord John Maynard Keynes famously said: the markets can remain irrational a lot longer than we can remain solvent.

We are only human and humans love a good story, which is why narratives are so enticing. I fall for them too, but try to keep the narrative in the background and the chart in the foreground. I have no idea how the market for VSCELs will evolve in 2018 and which stocks will emerge as the leaders, but learning about this industry allows me to add three potential growth stocks to my database and follow them in the future. I already had Finisar (FNSR) in my database and now I have a better understanding of its industry group niche. In addition, I recently added Lumentum (LITE) and II-VI Inc (IIVI) to the group. These three are grouped in technology, smartphones and 3D sensors. Apparently, STMicroelectronics (STM) and Viavi (VIAV) may also fit here.

Finisar Forges an Island Reversal

The first chart shows Finisar (FNSR) forging an island reversal with a gap down in early November and gap up in mid December. The stock also broke above the 200-day EMA and October resistance level. A trend change is in the making with the high-volume breakout, but I am not interested in chasing at this stage. It just goes in the database for future reference. Perhaps a dip back towards the 50-day EMA or an RSI(10) dip to 30 would trigger a bullish setup.

Lumentum Firms near Key Retracement

Lumentum (LITE) is more interesting than Finisar because it is in a long-term uptrend and trading near a reversal zone. After a 250+ percent advance and new high in July, the stock fell back below 50 with a retracement of around 61.8%. I see that the stock broke the 200-day EMA on 1-Dec and failed at the 200-day EMA this week, but it is still in a potential reversal zone. Also notice that the stock opened near the low and closed near the high on Wednesday. I am not showing candlesticks because I am more interested in the bigger picture, but a long white candlestick formed with extremely high volume. A follow through breakout at 55 would be bullish.

II-VI Corrects within Uptrend

II-VI (IIVI) is in a long-term uptrend with an inverse head-and-shoulders breakout in October and a new high in November. The stock fell back pretty hard into December, but it is near its first support zone. Notice that broken resistance turns into first support in the 40-41 area. In addition, the 41-43 area marks a 50-62% retracement of the August-November surge. Thus, the 40-43 area should be watched for a short-term reversal.