Lululemon's 50% Off Sale Continues: Time to Buy?
Here's how to trade the athleisure wear name after they lowered guidance.
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Lululemon LULU reported second-quarter fiscal GAAP EPS of $3.15, which beat estimates by $0.23 and revenue of $2.37 billion, which missed by $40 million. It was a mixed report and the company lowered guidance.
Let's stretch and warm up before looking at the charts and indicators.
In the daily bar chart of LULU, below, I can see that the shares have made a major decline this calendar year. What is a major decline in my book? A loss of more than 50% and here the loss is more than that.
Another interesting point is that when prices were cut in half you did not see heavy volume. I know a lot of investors who are attracted to stocks when they are having a 50% off sale — not here. LULU is trading below the declining 50-day moving average line but that line might get tested Friday.
The On-Balance-Volume (OBV) line has been weak and made lows in May and early August but it has not reversed directions. The Moving Average Convergence Divergence (MACD) oscillator has improved in August but it is still below the zero line.
In the weekly Japanese candlestick chart of LULU, below, I can point out two conflicting patterns. At the end of July and early August I can see a bottom reversal pattern but the two most recent candles are a bearish engulfing pattern. Prices are trading well below the declining 40-week moving average line.
The weekly OBV line has been weak since March. The MACD oscillator is well below the zero line but may generate a cover shorts buy signal.
In this daily Point and Figure chart of LULU, below, I can see an upside price target in the $363 area. I don't see enough of a base to support that but the software is the software.
In this weekly Point and Figure chart of LULU, below, I can see a possible downside target in the $181 area. Ouch.
Bottom-line strategy: Shares of LULU are bouncing higher Friday morning but I don't have much confidence that a low is in place and hardly any confidence that a bottom pattern is beginning to form.
Continue to go to your yoga or exercise class but I would not be in a rush to purchase shares of LULU.
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