Lululemon Still Looks Vulnerable Ahead of Earnings

Here's what we're seeing on the charts going into the print.

Lululemon Athletica (LULU) is scheduled to report their earnings after the close of trading Thursday.

We last looked at LULU on Sept. 8 ahead of its last quarterly report. At that time we recommended that, "I have no special knowledge of what LULU is going to report but the charts are telling me to avoid the long side of LULU for now with a downside price target on the daily Point and Figure chart. We have to wait and see if further price weakness will be a buying opportunity."

Let's check and see how things are looking today ahead of earnings this evening.

In the updated daily bar chart of LULU, below, we can see that the shares declined into early October. Prices subsequently rallied to new highs but have declined from the middle of November. The shares are trading around the cresting 50-day moving average line. The 200-day moving average line remains positive and intersects down around $375.

Trading volume did not expand on the October-November rally and that is a negative for old-time chart watchers like myself. The On-Balance-Volume (OBV) line shows weakness from the middle of November and that tells us of a shift to aggressive selling from aggressive buying. The Moving Average Convergence Divergence (MACD) oscillator is just slightly above the zero line and thus close to an outright sell signal.

 

In the weekly Japanese candlestick chart of LULU, below, we see a mixed picture. On the plus side LULU has been in a long-term advance the past three years and still trades above the rising 40-week moving average line.

 

The weekly OBV line shows a long rise but has leveled off the past two months. The weekly MACD oscillator has just crossed to the downside for a take profit, sell signal.

 

 

In this daily Point and Figure chart of LULU, below, we can see a potential distribution pattern and a downside price target in the $365 area.

 

 

In this weekly Point and Figure chart of LULU, below, we can see a tentative downside price target in the $346 area.

 

 

Bottom-line strategy: Again like last quarter, I have no special knowledge of what the officers of LULU are going to report to shareholders tonight. The charts and indicators of LULU are pointed down at this point in time and they could head still lower. A reflex rally is possible but I would avoid the long side of LULU for now.

 

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