Where lululemon's Chart Stands After Earnings

 | Dec 06, 2012 | 3:26 PM EST
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Now that earnings are out of the way, let's take another look at lululemon athletica (LULU). Recently this stock violated some of the higher support I was watching on the daily chart, but the idea behind looking at the buy side is still intact here, so let's take a fresh look at it.

First, the original setup in this stock was at the $64.92-$65.58 area. This zone included a 100% projection and a 0.50% retracement, along with a 1.272 extension of a prior swing. The actual low was made at the $65.09 level on Nov. 15.

Now this price-cluster low was followed by taking out some prior swing highs. This always tells me to watch the next pullback, since that is an indication of a more important trend reversal back to the upside. After the earnings report, I was able to find one more zone that could act as support above the Nov. 15 low. Since I did not run it until later in the session, I was not able to use it as a day-trade zone, but it still provides us with some information about the stock.

A new zone ($66.44-93) was constructed by using the 100% projection of the Nov. 2 high to the Nov. 15 low (a $7.26 decline) from the Nov. 28 high (illustrated by red lines on the chart. Then I ran a .786 retracement of the Nov. 15 low to the Nov. 28 high (illustrated by the blue lines). Last but not least, this was also overlapped by the 1.618 extension of Point 1 to Point 2 on the chart (illustrated by the green lines). A powerful reversal (sadly, one that I missed) was seen after testing and holding above this key zone.

This tells me as long as price holds above this new low, I want to look at buying a pullback to it, with the maximum risk defined below the Nov. 15 low. My bigger-picture upside target comes in at the $82.74 area, which is the 1.272 extension calculated from the last major high into the Nov. 15 low. If the Nov. 15 low is taken out, then I am wrong.

If you want to fine-tune an entry on a pullback, look for anywhere from 0.50% to 0.786 back to the last low and then wait for a five-minute trigger as described in my prior article on trades and triggers.



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