Traders Get a Second Chance at Lululemon

LULU setting up for a high-probability swing trade to the long side

   

In early December, I discussed a high-probability trade setting up in athletic apparel stock Lululemon (NASDAQ:LULU). Seven trading sessions later, the stock came within $1 of my $79 price target — close enough to qualify as a great trade in my book!

However, if you missed the trade at the time, LULU is setting up again for a high-probability swing trade to the long side. Let’s take a look.

From a longer-term perspective, the stock remains up big over the past two years, and thus currently is still consolidating some of those gains. Since November 2012, LULU has been trading in a range between $65 and $79, nicely oscillating back and forth. But all ranges eventually come to an end.

LULUtradingrange 1024x893 Traders Get a Second Chance at Lululemon

The rally from the August lows up to the September highs has now retraced 61.8% for the second time. For those not familiar, 61.8% is an important Fibonacci number that traders watch closely. This retracement level also happens to coincide with a horizontal support line and the low (near $65) of the trading range discussed above.

On Tuesday, Lululemon nearly hit the $65 level in a sharp intraday drop, only to rally in the afternoon, leaving behind a long tail on the daily candle. What we need now is a so-called “follow-through buying day,” where the stock trades higher, thus confirming the bullish candle from Jan. 15.

Given that we have a confluence zone of support near the $65 level — marked by Fibonacci and lateral support, as well as a bullish candle — an aggressive trader could consider taking an initial long position here. The more conservative approach, however, would be to wait for follow-through buying in coming days and set a stop near $65.

LULUFibonacci Traders Get a Second Chance at Lululemon

Should LULU follow through and continue higher, the stock will then be in a new swing to the upside. An obvious upside target for those long the stock would be near the previous high of $78. Should the stock eventually manage to power through $78, a new trading opportunity might arise — and if so, I plan to analyze that, too.

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.


Article printed from InvestorPlace Media, http://investorplace.com/2013/01/traders-get-a-second-chance-at-lululemon/.

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