Lululemon Athletica (LULU) is due to report its first-quarter results after the close of trading here on Thursday. How are the charts looking now and are there any clues of what traders are thinking or how they're positioning? Let's dig into them.
The last time we visited with LULU was on March 19 when TheStreet's Quant Ratings service downgraded LULU to "hold." We wrote, "A quantitative downgrade to 'hold' does not seem like the end of the world but the charts of LULU are looking more bearish than before. Stand aside and let's see how this plays out. A potential target of $98 has my attention."
In this updated daily bar chart of LULU, below, we can see that prices have largely moved sideways since our March 19 review. LULU is trading below the flat to declining 200-day moving average line. LULU has been trading around the 50-day average line the past two months. The On-Balance-Volume (OBV) line is close to a new low from its decline from early September and tells us that traders have mostly been aggressive sellers the past 10 months. The Moving Average Convergence Divergence (MACD) oscillator has been hugging the zero line recently, telling us that there is very little trend strength.
In this weekly Japanese candlestick chart of LULU, below, we can see a picture that does not instill confidence in buyers. Prices are trading below the declining 40-week moving average line. The weekly OBV line is flat to slightly declining. The $300-$290 area seems to be acting as chart support since the middle of last year, but a disappointing earnings report or guidance can change that quickly. The MACD oscillator has been weak since September and is below the zero line -- not a bullish setup.
In this daily Point and Figure chart of LULU, below, the software is reading the X's and O's as bullish with a $384 price target.
In this weekly Point and Figure chart of LULU, below, we used a five-box reversal filter and now the chart suggests a $539 price target.
Bottom line strategy: We have a dilemma. Our bar chart and candle chart are bearish in my opinion, but the Point and Figure charts are bullish. If LULU is going to rally from here the buyers are not being all that aggressive. What to recommend? If we view the long decline from September as a correction of previous gains, then we need to be a buyer of LULU today. Risk below $299. Add to longs on strength above $330. Our first upside price target is $384.
