September 14 - Lululemon (LULU) Trade Watch

Before starting this post, I should mention that Lululemon is traded both on the TSX and NASDAQ, under the tickers LLL and LULU respectively. Although in this post I chart and analyze LULU, it can be extended to the ticker traded on TSX.

With the recent earnings news released on September 10th, the stock has had a great run up. However, I'm starting to see a pattern I'm very familiar with - the unsustainable sharp run-up. The result of these patterns is an eventual pull back and I will look to put in a trade to capture the downside. Let's look at a daily one-year chart of LULU:


This pattern has repeated twice in the past couple of months, and possibly setting up for a third time! The pullbacks are very shallow followed by strong up movements, which means if I want to play contrarian, I will have to be in and out fast. As an addition to the volume, the 20 day Average True Range (ATR) has been plotted at the bottom. So at a $1 ATR, I can expect this stock to swing about an average of $1 a day. This way I can get a feel for how far to put stop-losses.

Lets look closer for signs of near-term strength or weakness. Below is today's chart in 5 minute intervals:


Today, LULU climbed with the markets but met with resistance in the afternoon as a triple top formed at around $24. This is bearish in the short-term and I expected a slide from there, however, it finished strong at the day's high. I will look to tomorrow's trading day for a short position entry... especially if we gap up, see market weakness, and come back below resistance levels.