Lululemon Stock is Overbought and Overloved in Advance of the results

Lululemon Athetica Inc. (LULU) stock has recorded its seventh all-time high, in just eight sessions on Tuesday, following May’s dramatic breakout above the February high in the $260s. The stock has now risen more than 190 points March 14-month low, highlighting the extraordinary relative strength in a market environment that has offered a handful of bull market advances since the pandemic broke out in the first quarter.

The retail giant is a major player in the profitability of athletic apparel market, with a huge potential to outperform the majority of competitors. Analysts believe that Lululemon is to take market share from their rivals, but the company has just reopened the stores in the united States and Europe, stressing the importance of the online portal, which has offered training sessions during the lockout. This much-needed resource has enabled customer loyalty during a difficult period, setting the stage for health 2020 profits.

However, the stock of the spectacular ascent may be nearing its end because the company reports first quarter 2020 profit on 11 June, and many of the shares have endured a sell-the-news reactions in the last few weeks. In addition, Lululemon has offered some details on the quarterly performance, which includes February, March and April, the worst months of the pandemic. Finally, the advance had been taken out of the overbought technical readings, raising the odds for a decline that shakes complacent shareholders.

LULU’s Long-Term Chart (2007 – 2020)

The Canadian company is publicly traded on the U.S. stock exchanges in July 2007, opening at $12.50 and the immediate capture of the uptrend that topped out at $30.35 in October. The decrease in the pause in the ipo of the opening print in December and collapsed in March, entering a steep slope of the downward trend which has posted lower at $2.16 in March 2009. That marked a historic buying opportunity, before a two-legged bounce that has completed a round-trip in the state of the high in December 2010.

A 2011 breakout stuck in the low $80 in 2012, marking a formidable barrier that has stood 2013 and 2016 escape attempts. Range-bound action found support in the $30 and $40 during this period, the sculpture of two times higher long-term lows that ultimately led to a breakout in January 2018. The price action ignored the commercial war of the winds from the front through most of the year, rising to $165 in the fourth quarter.

The stock broke out again in March 2019, is gaining ground in a channeled up which closed at $266.20 in February 2020. It crashed during the free-fall in March, dropping to the lowest since January 2019, while the increase in subsequent follows the same vertical path. Advance has completed a V-shaped pattern on the 21st of May, which gives an immediate escape, which has risen almost 50 points in less than two weeks.

LULU Short-Term Chart (2017 – 2020)

The balance volume (OBV), the accumulation-distribution indicator topped out in December, two months before the prize, and posted a six-month low in March. Later the purchasing power has reached the resistance in April, before an escape, which has anticipated that the prices would soon follow. OBV has continued to gain ground over the past seven weeks, highlighting the excellent build that should limit downward pressures during an inevitable fall.

The rally has released nine days in a row, setting off overbought technical readings that predict a steep decline. The price also has raised 100% out of the top of the monthly Bollinger Band® at the same time, marking the third time that this has happened since the month of September 2018. Of several weeks, the drops follow each of these extensions, the addition of the red flags that warn market participants to be cautious if they want to protect their profits.

The Bottom Line

Lululemon stock has carved out an impressive series of new highs, but the stock is now overbought and overdue for a multi-week retracement.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.


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