Lululemon athletica ( LULU) was recently upgraded to an "overweight" recommendation by a sell-side firm. With share prices almost cut in half in the past six months we may have the right conditions for a recovery rally. Let's check.
In the daily bar chart of LULU, below, we can see that the shares have made a serious price "adjustment" but there are some bullish divergences to point out. Prices are trading below the negatively sloped 50-day moving average line and below the declining 200-day line.
Trading volume has been more active since the middle of December and does not appear to increase significantly since the middle of April when the latest move down began. A pattern of stronger volume on the most recent selloff would tell me that traders are still voting with their feet but that is not the case. The On-Balance-Volume (OBV) line shows weakness from early April but it is still holding above the January and March lows for a bullish divergence.
The Moving Average Convergence Divergence (MACD) oscillator is bearish but it is above the late January low and for now represents another bullish divergence. 
In the weekly Japanese candlestick chart of LULU, below, we can see a lower shadow on the most recent weekly candle. On a daily candlestick chart for this week (not shown) we see daily lower shadows. Prices are below the declining 40-week moving average line.
The weekly OBV line shows a longer-term positive trend with only the past seven weeks looking soft. The MACD oscillator shows a potential bullish divergence as prices have made new lows for the move down but the MACD oscillator has not.
In this daily Point and Figure chart of LULU, below, we can see that a trade at $274.19 will improve the chart picture.
In this weekly Point and Figure chart of LULU, below, we can see a lower downside price target but we do not see much in the way of overhead chart resistance as prices have "gone straight down."
Bottom-line strategy: LULU is gapping higher Thursday and if the shares finish strong we should see further price gains in the weeks ahead. Aggressive traders could probe the long side of LULU. Risk to $258. I would not rule out a recovery to the $340-$360 area.
