He who does not look ahead remains behind.
Lululemon Athletica Inc. (LULU) opened at $84.25 and rallied to $87.39 or up more than 10% in reaction to its report of a strong earnings quarter. These gains may or may not hold up as the day wears on so let's look at how LULU looked as of Tuesday night.
In this daily bar chart of LULU, below, we can see that prices have been stuck in a $75-$85 trading range for the past three months. During this three-month consolidation the volume pattern has been boring and the daily On-Balance-Volume (OBV) line has been flat telling us that neither buyers nor sellers of LULU have been aggressive.
The 50-day moving average line turned flat or neutral this month but the 200-day moving average line is still rising. In the lower panel of the chart is the 12-day price momentum indicator. There is a peak in December and a lower peak in early March which contrasts with higher highs in price giving us a bearish divergence.
In this weekly bar chart of LULU, below, we have mixed technical signals. Prices are consolidating in a high area above the rising 40-week moving average line. The weekly OBV line shows a double peak in January and late February suggesting that sellers of LULU have been more aggressive on this time frame. In the bottom panel is the weekly Moving Average Convergence Divergence (MACD) oscillator which has rolled over to a take profits sell signal.
In this Point and Figure chart of LULU, below, we can see the price action through Tuesday. The overall pattern of activity is distribution as a number of rally failures can be seen. A downside price target of $74.35 was being projected. With the price strength today a new high for the move up will be registered. An upside price target of $100 or more will probably be the result. A reversal back to $83 will mean a "false breakout" or a bear-trap has happened.
Bottom line: Many times before an upside breakout occurs from an earnings "surprise" you can find some positive clues. Looking at LULU today I have not found a pattern of accumulation. While surprises do happen on Wall Street, I am not that confident to follow the strength this morning on LULU. I could be missing a rally to $100 but I would probably have to risk to $77 and that does not give me an attractive risk/reward ratio.
