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A Fresh Breakout Looms for Lululemon Athletica Inc. (LULU) Stock

Tyler Craig

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

The summer snooze is rolling on. But, hey, at least stretchy pants are waking up! Just look at Lululemon Athletica Inc. (NASDAQ:LULU) shares, which are popping 2% today. Relative strength has seized the stock, and with the price action looking healthy, I think a breakout in LULU stock is imminent.

LULU Stock: A Fresh Breakout Looms for Lululemon Athletica Inc. (LULU) Stock

Source: m01229 Via Flickr

The Canadian retailer has come a long way since getting poleaxed on earnings two quarters ago. In fact, LULU has almost reclaimed all that was lost during the one-day 23% plunge.

Its uptrend has officially been re-established. The summer ascent has carried the stock back above all major moving averages. And the 20-day and 50-day moving averages are both pointing higher here.

Volume patterns have remained subdued in recent months with nary a whimper of distribution. The lack of selling aggression has helped LULU’s budding uptrend go the distance.

Source: OptionsAnalytix

In the short run, a high base has formed. The tight, $2 range has $62 as resistance and $60 as support. Today’s pop ran the distance from the lower to the upper end and now has LULU knocking on the door of a breakout.

Once the stock moves decisively above $62, little resistance remains until the earnings gap fills at $66. That means we have room for follow-through.

The LULU Stock Trade

Let’s go with a simple stock trade. Buy Lululemon on a break of $62.35. A drop below $60 would invalidate the breakout attempt, so consider using that as your stop loss. Shoot for $66 as your target.

Keep in mind Lululemon is slated to report earnings on Aug. 31. If you’re still in the trade at that point, I suggest exiting to avoid the risk of an adverse gap. Remember, LULU is a mover and a shaker during these quarterly reports.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

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