Why Lululemon Stock Is Now a Long
Don’t let a hot forecast from Lululemon (NASDAQ:LULU) and stretchy reaction by Wall Street make you sweat. Instead, relax like a yogi master and prepare to buy LULU stock as it takes one of two righteous paths to higher ground. Let me explain.
Shares of Lululemon jumped higher by 5.73% Monday to kick off the trading week. Behind the move in LULU stock, Wall Street found itself reacting favorably to the athleisure, yoga-centric apparel outfit’s upwardly revised and above-views sales and profit guidance.
By the numbers, LULU stock is forecasted to earn $1.72-$1.74 per share for the fourth quarter on sales of $1.14 billion-$1.15 billion. That compares favorably to consensus views of $1.70 and $1.125 billion in revenues. Along with upbeat color from LULU’s management, analysts at Stifel weighing in favorably and a broader market proving quite limber, it’s time for LULU stock investors to put shares on the radar for buying.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
LULU Stock Price Chart
As I’ve stated before, even in healthier market environments, stocks like LULU aren’t immune to corrective activity. And given the broader average’s own brief taste of a bear market late last month, Lululemon’s 33% correction was far from surprising.
Now and following a fairly strong rally off a double-bottom formation, Monday’s jump to two-month highs has confirmed a new uptrend is underway. This is supported by a couple confirmed higher highs and higher lows in LULU stock, as well as last week’s breakout of a downtrend line.
The overall price action appears quite bullish. Still, the quick move higher has put Lululemon shares into an overbought challenge of the 50% and 62% resistance levels. As such, I’d expect shares could pull back by as much as 10% into trend-line and moving average support before moving to higher ground. But there’s no guarantees that’s how it will play it in LULU stock.
Bottom line, while I see a pullback as the favored path for LULU shares, overbought situations in a growth name like Lululemon can and often do beget more of the same. And with the broader market looking healthier after its correction, the chance for a momentum-style entry above Monday’s highs has definitely increased.
For investors agreeable with our bullish point of view, I’d keep Lululemon shares on the radar for buying on either type of entry. Regardless, I’d also strongly suggest using either a money or technical stop loss.
If investors have the opportunity to buy on weakness, an initial stop below $124 and slightly underneath technical support looks appropriate.
Under more enthusiastic circumstances, I’d say don’t sweat buying the momentum in LULU stock either. Just remember to size the risk accordingly. At the end of the day, working out in Lululemon is fine, but getting worked being long LULU shares during an extended downward dog move in shares is another thing altogether.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
More From InvestorPlace
The post Why Lululemon Stock Is Now a Long appeared first on InvestorPlace.
