by Serge Berger | April 22, 2014 8:00 am
Athletic clothing manufacturer Lululemon Athletica (LULU) is back on my radar after the company’s analyst day yesterday failed to impress investors and analysts, and subsequently led LULU stock to fall to a technically weak spot.
Lululemon failed to provide updates on its mid- or long-term financial objectives, and instead focused on laying out its product strategy going forward and displaying its latest articles. Lululemon also reiterated its plans on expanding in Western Europe and confirmed that its sales in Asia are going well. However, none of this addressed the company’s financial guidance, which left LULU stock analysts with plenty of unanswered questions.
When I last discussed the charts of LULU stock on March 28, the stock had just created a technically solid near-term technical bottom that I thought could lead Lululemon shares to bounce toward the $60 area. Even though LULU stock did break past the $53 resistance mark — which I highlighted as the clue for a rally — and gave traders a good 4% move from there, it also just as quickly bumped into resistance.
In many respects, yesterday’s 5.10% selloff in LULU confirmed that the company is not yet out of the woods. Looked at through a technical lens, it appears Lululemon stock might now have to retest its February lows at the very least.
Before looking at the closer-up LULU stock chart, let’s refresh our memories where the stock stands on the longer-term multiyear chart.
From its 2009 lows up to its May 2013 top, Lululemon staged a massive rally, which then finally was subject to a classic mean-reversion move. In February of this year, LULU stock had roughly retraced 50% of its entire multiyear rally, and that allowed for a good bounce. For the time being, the February lows thus remain an important reference line.
Yet, should push come to shove and if LULU were to break the February lows, then a next better support area comes into play in the low to mid-$30s, which coincides with the 61.8% Fibonacci retracement of the entire multiyear rally.
Flipping over to the daily chart, we find that yesterday’s selling in LULU stock pushed it back below its 50-day simple moving average (yellow line) and also to the bottom of what we might now be able to label as a bear flag pattern, marked by the black parallels.
With Lululemon not scheduled to report its next batch of earnings until June 12, unless LULU comes up with some better financial guidance in the meantime, the path of least resistance for now looks lower.
If and when LULU stock were to drop below yesterday’s low near $48, then a first downside target at the February lows near $44 would come into play. Should those lows also give, then the aforementioned next support level in the low to mid-$30s could come into play, although that for now is not my base case.
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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.
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