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Lululemon Athletica Inc. Is Stretching to the Sky

Tyler Craig

Lululemon Athletica Inc. (NASDAQ:LULU) has shaken off last week’s weakness and is now poised to soar to new heights. Only one resistance level remains before shares of the popular retailer forge into unseen territory. And with LULU stock up 1.7% in morning trading, the breakout seems imminent.

The relentlessness of the market’s rise this week suggests buyers have no reservations about plowing back into their favorite equities. Indeed, the recent crash seems all but a distant memory at this point. Even the most ardent skeptic has to be impressed at the S&P 500’s ability to vault 8% off the lows without so much as a pause.

Source: OptionsAnalytix

As buyers get dragged back in it’s the stocks that held up best during the crash that best deserve their affection. And that has LULU stock on the radar of traders everywhere. Here’s why.

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First, Lululemon stock was able to remain above all key support levels during the recent retreat. The 50-day moving average held firm, as did the horizontal support zone at $76.

Second, volume patterns have been resoundingly bullish over the past two weeks. The participation during every up day has outpaced that during each down day.

Third, though the S&P 500 remains well off its recent peak, LULU has already reclaimed all lost ground and is fast approaching new all-time highs.

The weekly chart reveals just how significant Lululemon’s current perch is. Since 2012, $82 has acted as an impenetrable ceiling in the sky halting a handful of the stock’s previous uptrends. If this week’s breakout attempt succeeds, it will mark a major victory for bulls and potentially kick-start a substantial rally.

Source: OptionsAnalytix

Double Your Dough with LULU Stock Options

If you’re willing to bet the current breakout attempt succeeds where its predecessors failed, then buy the June $80/$90 bull call spread for $4.40. By using June options, we’re giving the stock four months to pop towards $90. If you wanted a more aggressive play, you could build the trade with March options.

The max loss is $4.40, and the max gain is $5.60. That means you could capture a 127% return on investment if you ride all the way to expiration and LULU stock sits above $90.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.

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