A Lulu of a Setup

 | Jan 09, 2013 | 9:00 AM EST
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Lululemon athletica (LULU) is calling my name here. From an old buy setup in this stock, we still have not met the minimum target for the trade off the Nov. 15 low. This target still comes in above the market at the $82 area.

Recently, we have seen a healthy decline from the January highs in this stock, and I have identified a key Fibonacci price cluster zone for a buy. The zone comes in at the $69.66-$70.70 area. This zone is the coincidence of:

  • 0.618 retracement of the Nov. 15, 2012, low to the Jan. 2, 2013, high.
  • 100% projection of the Nov. 2, 2012, high to the Nov. 15, 2012, low projected from the Jan. 2, 2013, high
  • 1.618 extension of the Dec. 26, 2012, low to the Jan. 2, 2013, high.

These price relationships are illustrated on the daily chart.


LULU Daily


Now so far, the recent low has been made at $70.10, which is directly within this price support zone. This has been followed with day-trade triggers, and as of Tuesday afternoon, the aggressive (15-minute) trigger almost fired off. A rally above $71.67 needs to be seen to confirm the moving-average crossover on that chart. If you are more conservative, you may want to wait until the 30-minute buy trigger fires off.

(For more information on trades and triggers, please refer to this column.)

So we have the setup, which is the price cluster zone, and we are very close to at least the aggressive buy trigger for a swing trade. Your risk can be as tight as right below the $69.66 area, which is the low end of the price cluster zone. If the most recent low at $70.10 remains intact, target 1 comes in at the $80.10 area. Target 2 comes in at $82.82, which also overlaps the first target off the setup into the Nov. 15 low.

Bottom line, I'm going to look at buying LULU as long as price continues to hold above the healthy little price cluster zone and my swing trade trigger fires off!

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