Lululemon: 2 Ways to Play LULU Stock at a Critical Juncture

Lululemon Athletica inc. (NASDAQ:LULU) stock at one point in the spring was higher by nearly 40% year-to-date. As the broader stock market stalled, however, so too did LULU stock — and the recent selling in the market brought shares down to the unchanged mark for the year.

Beat the BellBut now, LULU stock is again trying to show some grit just as it reached a critical technical area of support.

Active investors and traders have a well-defined area of support to lean against for a bounce, which if it fails to materialize could quickly turn Lululemon south for a trade to the downside.

When Lululemon reported its latest financial results in early June, the stock jumped higher out of joy … but overly optimistic investors and traders alike have seen nothing but choppiness and pain since. While the company has undergone some restructuring over the past year or so, with the U.S. economy moderately slowing it is an uphill battle for a stock like LULU to massively outperform — something we once again saw amid shares’ recent selloff.

The fact is that when markets get turbulent, correlation among stocks increases and even relatively strong stocks get pulled lower.

Lululemon Stock Charts

Looking at the longer-term chart of LULU stock, we see that after topping out in June 2013, a sharp 55% correction ensued, but by summer 2014, Lululemon shares had bottomed and a rally lifted the stock into the spring of this year.

In the bigger picture, however, the price action since February has been mostly sideways for LULU stock, having earlier this week again reached the lower end of the range. Through this lens, Lululemon is at a medium-term make-or-break area, which is what makes this technical juncture so interesting.

lululemon lulu stock weekly
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On the daily chart, we see that the selling earlier this week pushed LULU stock below its red 200-day moving average, but shares managed to hold the lower end of the year-to-date range on a daily closing basis Monday. Lululemon has since bounced along with the broader stock market and now gives active investors Monday’s lows as a very last-resort stop for any bounce attempts.

lululemon lulu stock weekly chart
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Quicker traders could look to play the stock higher toward the $63 area, using the $58 area as a stop-loss. If a break below the $58 area holds on a daily closing basis, active investors may even look to the short side as the downside could then accelerate the stock into the high $40s.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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