Lululemon Moves From Downward Dog to Warrior Pose

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Athletic clothing manufacturer Lululemon Atheltica (LULU) on Thursday morning reported better-than-expected results for its second quarter and a marginally improved outlook for the full year. Investors responded positively, sending LULU stock higher in a good-looking technical breakout move that you can take advantage of.

beat the bellSpecifically, Lululemon earnings came to 33 cents per share, topping analyst expectations for 29 cents. The top line stood at $390.7 million, which also was better than Wall Street’s guess for $376.95 million. On a year-over-year basis, revenue was up 13% while gross profit rose 6%. Meanwhile, Lululemon raised its EPS forecast for the full year by a penny to a range of $1.72 to $1.77.

Like many “cult stocks,” LULU stock has plenty of lovers and haters (of both shares and the company’s products). Over the year, Lululemon’s gear has become a must-have for Yoga Nation, despite the incident of “see-through” pants that eventually had to be discontinued.

For active investors, what’s important when it comes to cult stocks is to focus on price action and not be disturbed by new innovative product launches or marketing techniques such as live yoga sessions in the dressing windows.

LULU Stock Charts

Looking at the multiyear weekly chart of LULU stock, note that the topping signs began in May 2012, but the stock didn’t really confirm this top until about 18 months later, in December 2013. By June of this year, LULU had retraced more than 50% of its entire 2009-13 ascent (in other words, it erased more than half of a four-year rally in less than 12 months). That’s painful for investors in any time frame, but also normal for cult stocks, which tend to fall more quickly than they rise.

Momentum (as represented by the relative strength index) bottomed in January of this year while price began to trade in a narrow range, and mostly sideways. This type of positive divergence was confirmed with Thursday’s rally and now puts LULU stock in a good position to add to Thursday’s rally in coming weeks if not months.

lulu stock chart weekly
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On the daily chart, the tight and defined range that LULU stock has traded in for the past few months is better visible. Thursday’s 13.9% rally in the stock, which came on a massive spike in volume, cleanly broke the stock out of this consolidation range on a breakaway gap that hurdled the 100-day simple moving average (blue line).

lulu stock chart daily
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From here, with upside momentum back in play, the stock’s next upside target is its 200-day SMA (red line) near $47.70, or around 9% higher from Thursday’s close. Active investors can consider hopping onto this new upside momentum in LULU stock, being mindful that any quick reversal of Thursday’s textbook rally would cancel the setup.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/lulu-stock-charts-lululemon/.

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