Lululemon Could Snap Back to Reality in the Weeks Ahead

Apparel maker and retailer Lululemon Athletica (LULU) was cut to a "hold" rating at HSBC Holdings (HSBC) with a $500 price target. Let's warm up and stretch and then look at the charts and indicators. 

In the daily bar chart of LULU, below, I can see that the shares tested the rising 50-day moving average line last week. The daily On-Balance-Volume (OBV) line worries me for two reasons. First it did not make a new high in December when LULU made new highs giving us a bearish divergence. Second, the OBV line turned lower in January suggesting a shift from aggressive buying to aggressive selling.

The Moving Average Convergence Divergence (MAD) oscillator has weakened sharply since December and is poised to cross below the zero line for an outright sell signal. 

In the weekly Japanese candlestick chart of LULU, below, I see a mixed picture. On one hand a top reversal pattern can be seen in December. On the other hand (sounds like an economist) I can see a large lower shadow on the latest weekly candle telling me that traders rejected the lows. The shares are still well above the rising 40-week moving average line.

The weekly OBV line is showing a peak of sorts in December. The MACD oscillator has been narrowing, telling me that the trend strength has begun to weaken. 

In this daily Point and Figure chart of LULU, below, I can see a possible downside price target in the $412 area. 

In this second Point and Figure chart of LULU, below, I used the weekly price data and can see the same $412 downside price objective as shown on the daily above. 

Bottom-line strategy: The charts and indicators of LULU are mixed but after its big rally in the past year and its fundamental downgrade the risk to the downside has increased. 

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